Intel plunges nearly 10.0% in premarket on weak quarterly results

Intel (INTC.US) shares fell nearly 10% in premarket trading after the chip maker posted disappointing Q4 results and issued a weaker-than-expected financial guidance.

Highlights of Q4 2022 results

• Earnings per share (EPS) of 10 cents versus market expectations of 20 cents (Refinitiv)

•  Revenue of $14.04 billion versus market expectations of $14.45 billion (Refinitiv).

• Intel's revenue fell by 32% y/y and this is the fourth consecutive quarter in which the company has recorded negative sales dynamics as the PC market is in retreat after the "covid boom".

• The company reported a net loss of $664 million, compared with a profit of $4.62 billion in the prior-year quarter.

Outlook for 2023

Investors can expect weak results in Q1 2023 as well. Intel expects a net loss per share (EPS) of 15 cents on revenues in the range between $10.5 billion to $11.5 billion.Refinitiv analysts' expected earnings per share of 24 cents on $13.93 billion revenue.

Intel's Management Board has declined to provide a full-year outlook citing an uncertain economic environment and expects to face significant economic challenges in the first half of the year.

Results of individual business segments

In the fourth quarter, Intel's Client Computing group, which manufactures integrated circuits for personal computers, generated $6.63 billion in revenue, which is a 36% drop y/y. The market consensus (StreetAccount) assumed $7.68 billion. Demand fell sharply mainly in the consumer and education segments. Company said that in the recent quarter the PC market has shrunk at the sharpest pace since it began tracking the industry in the 1990s.

On January 12, Intel estimated that in the 2023 PC sales would be between 270 million to 295 million. Yesterday, the company said it now expects sales to be in the lower end of this range.

Revenue of Data Center and AI segment, which consists of server chips, memory and programmable gate arrays, dropped 33%y/y to $4.30 billion and topped market consensus (StreetAccount.) of $4.17 billion. Intel said it faced competitive pressure and a decline in market size.

Intel's Network and Edge business, which includes networking products, posted $2.06 billion in revenue, which represents decline of 1% y/y and stands below the StreetAccount consensus of $2.26 billion.

Margins decrease in analysts spotlight

The company reported a significant decline in gross margin of 220 basis points (2.2%) compared to the previous quarter. The reason was the underload charge, which arises when the production capacity of factories is underutilized. In Q1 2023, the loading issue will hurt gross margin by 400 basis points, said Intel CFO Zinsner.

Intel said in January it extended the useful life of some devices from five to eight years, adding $2.6 billion to 2023 gross profit. The move is separate from the $3 billion 2023 austerity plan Intel announced in October. Amazon and Microsoft have made similar accounting adjustments to their servers and network equipment in recent years, and IBM on Wednesday followed their footsteps.

Intel (INTC.US) stock fell sharply in premarket and if current sentiment prevails downward move may deepen towards December lows at $25.50. Source: xStation5