Intel promises more cost cuts as sales forecast beats estimates

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(Bloomberg) – Shares of Intel Corp. climbed late in the session after the chipmaker pledged to drastically cut costs, an effort to address a continued decline in computer demand that is hurting sales and profits and hampering its efforts to recovery.

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The company said actions such as workforce reductions and a slowdown in spending on new factories would result in savings of $3 billion next year, with annual reductions of up to $10 billion. by the end of 2025. Third-quarter earnings and revenue fell, Intel said in a statement Thursday, and it again cut its 2022 revenue and profit targets.

CEO Pat Gelsinger had been banking on a rapid rebound in semiconductor sales to help fund his ambitious plans to restore Intel to its former dominance in the $580 billion industry. Gelsinger, who three months ago predicted the third quarter would be the company’s worst performance, instead said demand for Intel’s computer processors has fallen even more sharply than expected and the outlook remains bleak.

“Macro aggravation was history and is history,” Gelsinger said in an interview. “There is no good economic news.” Predicting a bottom for the computer chip market would currently be “too presumptive,” he said.

Net income for the third quarter was $1 billion, or 25 cents per share, compared with $6.8 billion, or $1.67 per share, in the same period a year ago. Revenue fell 20% to $15.3 billion. Prior to certain items, earnings were 59 cents per share. Wall Street was looking for a profit of 33 cents on sales of $15.4 billion.

Intel shares first fell, then rose about 5.4% in late trading after the announcement. Earlier, they closed at $26.27. The stock has fallen 49% this year.

Earlier this month, Bloomberg News reported that Intel was planning a major workforce reduction, likely in the thousands, according to people familiar with the situation. Some divisions, including Intel’s sales and marketing group, could see cuts affecting around 20% of staff, the sources say. In its earnings report on Thursday, the company did not say how many jobs would be cut.

Fourth-quarter revenue will be about $14 billion to $15 billion, the company said, compared to analysts’ estimate of $16.3 billion. Earnings, excluding certain items, will be 20 cents per share, below the average forecast of 66 cents.

For the year, Intel cut its revenue forecast from $63 billion to $64 billion, down up to 20% from 2021. Gross margin will shrink more than expected to 47.5% and the earnings per share will be around $1.95.

Gelsinger said the level of profitability is not sufficient and is partly the result of inefficiencies in Intel’s operations that need to be corrected. The once-industry-leading company’s fabs will be forced to report their utilization rates, and chip designers will have to get better at getting the blueprints they send to those fabs the first time around. Intel’s rivals use fewer people to get better results, he said.

A bright spot in Gelsinger’s plans to reshape the company came earlier this week, when Intel’s standalone technology unit, Mobileye Global Inc., began publicly negotiating a partial spinoff. Its shares jumped 38% in their market debut on Wednesday. Intel retains control of the division, which raised $861 million in the stock sale. Gelsinger said Mobileye could serve as a model for other such transactions that will help Intel capitalize on the value of some of its assets.

In the third quarter, sales for Intel’s data center division – which typically contributes an outsized share of profits – fell 27% to $4.2 billion, below the average estimate for $4.83 billion analysts. Client computing, Intel’s PC chips unit, saw sales decline 17% to $8.1 billion, compared to projections of $7.78 billion. The unit gained market share, Gelsinger said.

The slump in consumer purchases of gadgets has spilled over into business spending amid fears the global economy is heading into a recession. This belied predictions by chip industry leaders that the boom of the past two years could last, driven by the proliferation of semiconductor use in more types of devices. Demand for computers and smartphones remains the biggest influence on the fortunes of the broader chip industry, which grew by more than $100 billion last year and was predicted by some to quickly double to a trillion dollar company.

Many of Intel’s biggest rivals issued bullish reports or warnings about the outlook for computer components, coming in billions of dollars off estimates or cutting their forecasts. While periodic declines are not unusual for the chip sector, analysts fear the current decline is due more to a shrinking economy than a buildup of excess inventory that has the potential to quickly disappear.

(Updates with CEO comments from the third paragraph.)

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