Intel shares tumble after element shortages hit PC chip enterprise

Intel stock fell more than 8% in expanded trading Thursday on a weaker-than-expected sales report and after the company blamed an industry-wide component shortage for the 2% decline in its PC chip business in the October 2nd quarter.

Intel also warned Thursday that its gross margin and free cash flow would drop to lower levels over the next two to three years as it invests in research and development and builds new chip factories.

Here’s how Intel performed compared to Refinitiv’s estimates:

  • EPS: $ 1.71 adjusted versus expected $ 1.11.
  • revenue: $ 18.1 billion, adjusted versus expected $ 18.24 billion.

Intel said it expects adjusted revenue of approximately $ 18.3 billion for the fourth quarter, compared to analysts’ expectations of $ 18.24 billion.

Intel’s largest division, its client computing group, declined 2% year over year to $ 9.7 billion. This includes the income from PC chips. Intel said PC sales declined mainly due to lower laptop volumes due to chip shortages and that its customers may have been missing other parts they needed to complete the computers.

“We call it match sets where we might have the CPU, but you don’t have an LCD or WiFi. Data centers especially struggle with some power chips and some networks.” or Ethernet chips, “said Intel CEO Pat Gelsinger in an interview with CNBC.

Gelsinger said PC demand was still strong and he didn’t expect the semiconductor shortage to end before 2023.

“We’re at the worst now, every quarter of the next year we’re gradually getting better, but they won’t have a balance between supply and demand until 2023,” said Gelsinger.

PC sales have been strong over the past year as consumers around the world needed new laptops and desktops to work from home. However, according to analysts, the pandemic-induced PC surge could come to an end as sales slow.

Gelsinger said he believes the surge in PC sales is likely a trend that will continue. “We think the PC business is structurally bigger now, a million units a day,” said Gelsinger.

Intel’s Data Center Group, which sells processors and other silicon for data centers, had sales of $ 6.5 billion, up 10% year over year, but fell short of analysts’ estimates of $ 6.66 billion. Intel said the annual increase was due to increased demand for on-premise servers for businesses and governments.

Intel is in a period of massive investment as it is spending $ 20 billion this year, including on a new semiconductor factory in Arizona. Investors are closely monitoring Intel’s gross margin as the company invests in ramping up new production lines to compete in semiconductor performance.

Intel said its gross margin, the revenue remaining after accounting for the cost of goods sold, will decline, although it will not go below 50%, and will recover thereafter. For the third quarter, Intel reported a gross margin of 56%.

The company plans to move its business model to a manufacturer or foundry for other chip designers, in addition to continuing to develop and manufacture its own processors.

The quest to become a foundry is an expensive initiative the cost of which could be covered by government support in the US and Europe, but could be extremely lucrative if the semiconductor industry doubles in the next 10 years as Intel predicts.

During the quarter, Intel signed the US government as a foundry customer, Intel said.

Intel’s gross margin was 56% for the quarter, up 2.9% year over year. The company also saw growth in its Internet of Things group, which grew 54% to $ 1 billion, and Mobileye, its automotive chip subsidiary, which grew 39% to $ 326 million.

Intel CFO George Davis announced that he will be retiring in May 2022.

Intel is likely to release more details on how it sees the transition to a foundry and its views on its technology roadmap over the next month on its Analyst Day, which the company rescheduled Thursday to next February, likely next month. It was originally planned for November.

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