Intel slashes outlook after announcing unexpected drop in revenue

Intel shocked Wall Street by reporting a revenue slump in its latest quarter and slashing its financial outlook for the rest of the year, sending its stock price down 10% in trading after-sales Thursday.

The biggest U.S. chipmaker by revenue blamed the disappointing results on weakening economic conditions, supply chain disruptions and competitive pressures. The news follows strong earnings reports from other major chip companies in recent days and suggests Intel has been hurt by its exposure to the shrinking PC market and its loss of leadership in advanced chip manufacturing. for the benefit of TSMC.

In a statement, chief executive Pat Gelsinger said the results were “below the standards we have set for the company and our shareholders. We must and we will do better.

He added that a “sudden and rapid decline in economic activity was the main driver” of the decline in revenue, but also reflected “execution issues” within the company.

In a call with Wall Street analysts, the Intel chief was asked why the company didn’t issue a profit warning and why its results in the server market were even worse. lower than expectations on PCs.

Gelsinger said Intel was “well into the quarter” when its customers suddenly responded to weakening end demand by reducing their inventory levels. He called the reductions “one-time-in-kind 10-year adjustments” to inventory.

Chief Financial Officer David Zinsner added that Intel believed sudden inventory adjustments were a short-term factor that would mean its second and third quarters would mark “a financial bottom” before conditions began to improve. Upcoming price increases for its PC chips and a number of new products also gave the company great confidence that the decline would be short-lived, he added.

However, Gelsinger acknowledged that Intel also suffered from product slippages during the quarter. It added that volume sales of its latest server chip, dubbed Sapphire Rapids, had been pushed back six months, further delaying its efforts to regain its competitive edge against rival AMD.

Pro forma revenue for the second quarter of the year fell 17% from a year earlier to $15.3 billion, while earnings per share fell 79% to 29 cents. Analysts had expected revenue of $17.9 billion and earnings per share of 69 cents.

The news came as the House of Representatives passed the long-awaited Chip Act, which will provide $52 billion in subsidies to chipmakers to do more of their manufacturing in the United States.

Intel, which is set to receive up to $6 billion for a new factory in Ohio, is expected to be one of the biggest recipients of US taxpayer support.

For the current quarter, the chipmaker said it expects revenue of $15 billion to $16 billion, well below the $18.6 billion that analysts had forecast. Earnings are expected to hit 35 cents a share, versus a Wall Street forecast of 87 cents.