Intel Surges After Results Raise Hope Over Reform Effort

Article content

(Bloomberg) — Intel Corp. provided a fourth-quarter revenue forecast above estimates, raising hopes that it can regain lost market share. Stocks increased.

Fourth-quarter revenue will be $13.3 billion to $14.3 billion, the Santa Clara, California-based company said in a statement. That’s compared to the $13.6 billion analysts estimated. The company is reporting earnings of 12 cents per share compared to 6 cents projected by Wall Street.

Article content

The company gained 12.9% to $24.30 in extended trading, after closing at $21.52 in New York. Shares are down 57% so far this year.

Intel, once the industry leader in computer processors, is now working to save money to finance a turnaround plan – Chief Executive Pat Gelsinger called it “the smartest restructuring plan” in the company’s history, in an interview with Bloomberg.

In the previous phase, Intel announced job cuts, reduced its spending and stopped paying investors. Now, Gelsinger needs to show that it can withstand cash outflows by generating new orders from customers.

“This was a critical time for the company,” Gelsinger said in an interview. “We have done a lot.”

The decline in investor interest in what was once the world’s largest producer underscores a major shift in the semiconductor industry in favor of artificial intelligence hardware. Companies are spending money on computers built around AI accelerator chips, an area where Intel’s offerings have not lent themselves. Instead, customers flocked to Nvidia Corp, fueling its massive expansion.

Article content

Article content

The decline in Intel’s value has made it attractive to potential beneficiaries in various break-up situations, according to a report by Bloomberg and other news organizations. Gelsinger said that some business units that he thinks are not important will seek outside investors or look to sell shares to the public.

Gelsinger said he intends to keep the company together and the board supports his plan. He has “a lot of energy and passion” to bring to that effort, he said.

“There’s obviously a lot of attention on Intel that just reinforces the important role it plays in the technology industry,” he said. “We believe that the strategy is different, but better if we are together.”

The company is also under siege in its niche of selling processors for servers and personal computers. For decades, its high production made its chips the market leader and closed an impossible high market share. It has since lost its lead in process technology to Taiwan Semiconductor Manufacturing Co., others such as Nvidia and Advanced Micro Devices Inc. they have been able to install competitive chips made by an outsourced manufacturing provider.

Article content

Gelsinger’s ambitious plans to restore leadership in that key area include a new factory network that he plans to fill with orders from other chipmakers, in addition to Intel’s designs. Currently, Intel is facing depressed revenue and high costs. That has destroyed profit margins that were once the envy of the industry.

Gross margin, or the percentage of sales remaining after deducting manufacturing costs, was 15% for the quarter. At its peak, Intel regularly reports an overall margin of over 60%.

In the third quarter, the company lost 46 cents a share, excluding certain items, on revenue of $13.3 billion, down 6%. That total for the quarter was the lowest for a third quarter in more than a decade but came in ahead of the company’s projections, Gelsinger said.

Analysts estimated a loss of 3 cents a share and sales of $13 billion. Wall Street predicts a slight increase in sales this year through 2024, still leaving the company more than $20 billion short of its 2021 peak.

Gelsinger remains convinced that Intel is on the right track in the long run. He said Intel has paid a heavy price to acquire the factory, and now it can focus on its finances.

Article content

The manufacturer reports profits for the third time under a new corporate structure that reflects the financial performance of its manufacturing operations. Gelsinger said the restructuring is a necessary step to make the operation more efficient and competitive.

Its foundry unit saw sales fall 8% from the year-ago quarter to $4.4 billion, in line with estimates. PC chip sales were $7.3 billion, compared to an average of $7.46 billion. The data center and AI chip unit gained 9% with sales of 3.3 billion, compared to the average of 3.1 billion.

(Reviews the interview with Gelsinger in section four.)

Article content