Intel’s weak guidance points to more trouble ahead for US chipmaker

Intel has taken an axe to its financial guidance for the first quarter of the year, as the collapse in PC sales and falling market share in its server chips division late last year proved even worse than Wall Street had been expecting.

The news sent its shares down nearly 10 per cent in after-market trading on Thursday.

Chief executive Pat Gelsinger blamed the latest step-down in Intel’s financial prospects on “persistent macro headwinds” and a much sharper chip inventory correction than it had been expecting. Intel did not issue financial guidance for the rest of the year but Gelsinger held out hope for a rebound in the second half of 2023 on an economic recovery in China and improving demand from large corporate and government customers.

The chipmaker said it expected revenue in the current quarter to fall to $10.5bn-$11.5bn, pointing to an accelerating decline in its business after a slump in the second half of 2022. At the midpoint, the company’s revenue forecast was nearly $3bn below analysts’ expectations and implied a 40 per cent tumble from a year before.

The sombre forecast came as Intel revealed that revenue had fallen 32 per cent in the final months of 2022 to $14bn, compared to expectations of $14.45bn. Adjusted earnings per share in the period were 10 cents, down from $1.15 a year before and below the 20 cents that Wall Street had forecast.

The latest figures also pointed to a sharper deterioration in Intel’s finances, rekindling worries that it will be forced to slash its dividend payments. The company reported negative adjusted free cash flow for the year of $4.1bn. It had cut its forecast to a decline of $2-$4bn only three months before.

David Zinsner, chief financial officer, said the cash flow had been affected by the delay of $3bn of subsidies that had been expected in 2022, and that Intel was “committed to maintaining a competitive dividend”.

Most analysts had already cut their expectations for Intel in recent weeks, despite the positive reaction to the launch two weeks ago of a new generation of server chips designed to make up lost ground on arch-rival AMD.

Though an important step in reducing the technology gap that had opened up between the two companies, most analysts predicted it would not be enough to win back market share, and that Intel’s market position would continue to slip until it manages to catch up in advanced manufacturing with TSMC.

In the latest quarter, revenue from Intel’s client computing group fell 36 per cent to $6.6bn, while sales in the data centre and AI division fell 33 per cent to $4.3bn.