Intel stock punished again as profit margins lower than earnings forecast, but CEO sticks to his plan

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Intel Corp executives expect profit margins to remain under long-term pressure as the chipmaker bolsters manufacturing capacity, leading to disappointing earnings forecasts that weighed on the company’s shares on Wednesday afternoon.

Profit margins took center stage in Intel’s INTC,
+1.35%
earnings report for a second straight quarter as the company’s earnings forecast fell short of Wall Street expectations. Intel forecasts GAAP gross margins of 49% and non-GAAP margins of 52% for the first quarter, which should result in GAAP earnings of 70 cents per share and non-GAAP earnings of 80 cents per share.

Analysts on average had expected first-quarter adjusted earnings of 86 cents per share on revenue of $17.61 billion, while Intel expected revenue of about $18.3 billion. The shares were down about 3% in after-hours trading after the results, after closing up 1.4% in the regular session at $51.69.

Intel executives plan to spend freely on boosting manufacturing capacity amid semiconductor shortages, drawing ire from many analysts who fear the company’s aggressive capital-building plans will weigh too heavily on profit margins. Last week, Intel confirmed plans to invest more than $20 billion in a massive chip manufacturing facility in Ohio, in addition to fabs in Arizona.

On the call, Intel chief executive Pat Gelsinger told analysts the company had “a long way to go” in building capacity, or “shells,” to deal with supply constraints. .

“Boy, I feel like having a free shell today that we could jump into,” Gelsinger told analysts. “We just need to build more hull capacity and then we’ll figure out where the best use is and how to fill it as we start to grow.”

Read: Tokens Could Be Sold Out For 2022 Due To Shortage, But Investors Worried The Party Will End

Chief Financial Officer David Zinsner said on his first earnings call with Intel that he felt comfortable with a 51% to 53% gross margin range for the year. Longer term, Gelsinger said he expects margins to recover during the final period of the five-year window he outlined last quarter.

Zinsner, formerly Chief Financial Officer of Micron Technology Inc. MU,
+1.55%,
said Intel will provide guidance for the full year at its February 17 investor meeting.

In the fourth quarter, Intel reported gross margins fell to 53.6% on a GAAP basis from 56.8% a year ago, and to 55.4% on a non-GAAP basis from 60% a year ago. a year. Intel had forecast fourth-quarter margins of 53.5%, and Gelsinger assured analysts last quarter that margins would remain “comfortably above 50%.”

Intel reported fourth-quarter net income of $4.62 billion, or $1.13 per share, compared with $5.86 billion, or $1.42 per share, a year ago. After adjusting for acquisition-related expenses and other items, Intel reported earnings of $1.09 per share, compared with $1.52 per share a year ago.

Read: Chip Sector Flirts With Bear Market Territory As Semiconductor Earnings Kick Off

Revenue reached $20.53 billion, compared to $19.98 billion in the year-ago quarter. Excluding the company’s divested memory business, revenue was $19.53 billion, compared to $18.86 billion a year ago.

Analysts had expected adjusted earnings of 90 cents per share on revenue of $18.33 billion, based on Intel’s forecast of 90 cents per share and revenue of about $18.3 billion. .

For the fourth quarter, revenue for the important data center category jumped 20% to $7.3 billion, above the Street’s estimate of $6.73 billion. Revenue from client computing, the traditional PC group, fell 7% to $10.1 billion, but still beat Wall Street’s estimate of $9.59 billion.

Read: The pandemic PC boom gave personal computers their biggest year in nearly a decade

Non-volatile memory solutions revenue fell 18% to $1 billion from analysts’ expectation of $1.06 billion; “Internet of Things,” or IoT, revenue grew 36% to $1.1 billion vs. $1.06 billion expected; and Mobileye’s revenue rose 7% to $356 million from $355.1 million expected by Street.

Intel also announced that its board of directors had increased the annual dividend by 5% to $1.46 per share. Wednesday’s earnings report follows a report earlier in the day that Intel won its appeal against a $1.2 billion antitrust fine from the EU.

Earlier this month, Intel told CES it was launching its Arc “Alchemist” ray tracing graphics chip to compete with Nvidia Corp. NVDA,
+2.01%
and Advanced Micro Devices Inc. AMD,
-0.38%
in the hot GPU market.

Late Tuesday, Texas Instruments Inc. TXN,
+2.51%
kicked off earnings season for U.S. chipmakers, posting quarterly earnings and outlook that beat Wall Street expectations. AMD releases its results on Tuesday and Nvidia is due to release its report on February 16, the day before Intel’s meeting.

Over the past 12 months, Intel stock has fallen 5%. Over the same period, the Dow Jones Industrial Average DJIA,
-0.38%
– which counts Intel as a component – gained 12%, both the PHLX Semiconductor Index SOX,
+1.68%
and the S&P 500 SPX index,
-0.15%
rose 15%, and the tech-heavy Nasdaq Composite Index COMP
+0.02%
ticked 2% more.

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