(Oct 22): Intel Corp on Thursday forecast lower profit margins for years to come as it attempts to regain a lead in making the world's fastest chips and ramps up new factories, sending its shares down 9%.
The company also reported third-quarter sales that missed expectations, with Chief Executive Officer Pat Gelsinger telling Reuters that shortages of other chips needed to make computers are holding back sales of the company's flagship processor chips.
In a conference call with investors, Santa Clara, California-based Intel, the world's biggest maker of central processors at the heart of PCs and data center servers, said gross profit margins are likely to be between 51% and 53% in the next two to three years.
The forecast is well below the 56.2% that analysts expect for 2021, according to IBES data from Refinitiv.
Gelsinger said the main reason was Intel's ambitious plan to introduce several new generations of chipmaking technology by 2025. All new generations of chipmaking technology tend to be less efficient in their early phases, becoming more profitable as chipmakers perfect their processes.
Intel's turnaround plans call for working on several generations of technology in parallel, executives said.
"We have a couple of years to work through, but this is going to be a great outcome," Gelsinger said on the call. "We think all of our aggressive lean-ins right now are going to be handsomely rewarded in the marketplace."
In an interview, Gelsinger said Intel has resolved shortages facing its own internal manufacturing operations, but that shortages of other chips such as power management chips and WiFi chips were stopping its customers from shipping PCs and servers, reducing the need for Intel's chips.
"That's a direct result of the overall supply challenges of the semiconductor industry," Gelsinger said.
Gelsinger's plan to remake the company by fixing its internal manufacturing issues while opening its doors to outside customers has largely gone over well with investors, with shares rising about 11% this year before Thursday's results wiped out much of the gains, at least in after-hours trading.
Giving an unexpected long-range forecast, Intel said it expects at least $74 billion in revenue in 2022, higher than analyst estimates of $73 billion. But the company also plans to spend heavily, saying that capital expenditures could reach $25 billion to $28 billion in 2022 and rise in subsequent years.
Meanwhile, rivals like Nvidia Corp and Advanced Micro Devices who make faster chips by leveraging outside contract manufacturers are continuing to eat into Intel's market share.
Intel missed estimates for its data center segment, with sales of $6.5 billion compared with estimates of $6.6 billion, according to Refinitiv data. Gelsinger told Reuters some of the data center results were because of Chinese cloud computing vendors - major customers of Intel - adjusting to new rules from the Chinese government.
Atlantic Equities analyst Ianjit Bhatti said the lower sales to cloud computing groups reflected market share gains by AMD. Shares of AMD and Nvidia were up slightly after Intel's results.
Intel reported adjusted sales for the third-quarter ended Sept. 25 of $18.1 billion, missing estimates of $18.24 billion, according to IBES data from Refinitiv. Intel reported adjusted profits of $1.71 per share, compared with Wall Street estimates of $1.11 per share, according to Refinitiv data.
Intel Chief Financial Officer George Davis, who Intel said on Thursday will retire in May 2022, said about 14 cents of the outperformance came from demand for higher-margin products and operational gains, while the rest came from one-time items like tax restructuring.
Intel forecast fourth-quarter revenue slightly above Wall Street expectations. The company expects fourth-quarter revenue of about $18.3 billion, compared with analysts' average estimate of $18.25 billion, according to IBES data from Refinitiv.