Intel Cuts Full-Year Profit Forecast, Chipmaker Plans Layoffs as Firm Ramps Up Sales Into Data Centres

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Intel on Thursday cut its full-year profit and revenue forecast and warned it would lay off staff, but a stronger-than-expected performance at its personal computers segment helped send shares higher. The company’s shares jumped over 5 percent in after-hours trade. They have slumped roughly 47 percent so far this year, underperforming both the S&P 500 index and the Philadelphia SE Semiconductor index.

The company’s Chief Executive Pat Gelsinger said the cut to the fourth quarter outlook reflected economic uncertainty expected to last into next year, and that the company was taking time to ramp up sales into data centers, which dropped 27 percent in the third quarter.

Intel also cut its capital spending forecast for this fiscal year to $25 billion (roughly Rs. 2,05,900 crore) from a previous forecast of $27 billion (roughly Rs. 2,22,400 crore).

Asked about potential layoffs, Gelsinger told Reuters “people actions” would be part of a cost reduction plan. Intel said it would drive cost reduction of $3 billion (roughly Rs. 24,700 crore) in 2023.

“The amount that we can do with respect to people costs is a minority of our overall cost structure. So driving efficiency in the factory network is way more important to our economics than people cost,” Gelsinger told Reuters, adding that adjustments to flexible workforces can be “quite immediate”.

The adjustments would start in the fourth quarter, he said, but did not specify how many employees would be affected.

Intel had 110,600 employees in late 2020, just before Gelsinger took the helm. That has ballooned to 131,500 by early October this year.

Silver Lining

Macroeconomic headwinds have muddied the outlook for the PC and data center market, both big markets for Intel.

Intel’s “PC Client business was the silver lining as sales grew sequentially giving investors some hope that share loss has moderated materially,” said Summit Insights Group analyst Kinngai Chan.

Revenue from the client computing group, which accounts for Intel’s PC sales, rose to $8.1 billion (roughly Rs. 66,700 crore) in the third quarter from $7.7 billion (roughly Rs. 63,420 crore) in the second quarter.

“We believe its data center share loss should also moderate going into next year,” said Chan.

On Thursday Amazon reported earnings that missed analyst expectations for revenue at its cloud business, AWS, which rose 28 percent to $20.5 billion (roughly Rs. 1,68,850 crore). AWS, and other cloud service providers, are big customers of chip makers, including Intel and key to their revenue growth.

Intel has been losing market share in the data center market and Gelsinger said it lost market share again in the third quarter.

“Our products weren’t shipping new products like Sapphire Rapids, but as those are now in full production and we’re going to be ramping those aggressively, we’re better positioned going forward than we have,” he told Reuters, adding that it would take several quarters to ramp up.

But he said Intel gained “meaningful” market share improvement in the PC segment in the third quarter.

Surging inflation has hit demand for computers and other gadgets, forcing electronics companies to cancel orders for components such as chips as they struggle to clear inventory.

PC shipments fell 15.5 percent in the third quarter, data from Counterpoint Research showed. Intel said it expects 2022 PC market to decline in the mid-to-high teens.

Still, Gelsinger said Intel expected its total addressable market – the market it is pursuing – in 2023 to stand at 270-295 million units.

The company now expects 2022 annual revenue of about $63 (roughly Rs. 5,18,870 crore) billion to $64 billion (roughly Rs. 5,27,110 crore), compared with $65 (roughly Rs. 5,35,370 crore) billion to $68 billion (roughly Rs. 5,60,110 crore) estimated earlier. Its original forecast was for about $76 billion (roughly Rs. 6,26,000 crore). Analysts on average expected annual revenue of $65.26 billion (roughly Rs. 5,37,540 crore), according to Refinitiv data.

Intel trimmed its full-year adjusted earnings per share forecast to $1.95 (roughly Rs. 162) from $2.30 (roughly Rs. 189).

© Thomson Reuters 2022


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