Intel Shares Fall After Report As Data Center Chip Sales Disappoint

Intel reported first-quarter 2021 earnings and earnings above analyst estimates, but its second-quarter earnings forecast and drop in data center chip sales disappointed investors.

Intel (INTC) shares tumbled 2.6% in non-trading time after the US chipmaker reported its first quarter results and forecasted for the full year of 2021.

Intel Report Key Figures

Intel reported a 4% decrease in earnings per share in the first quarter (compared with the same value in 2020) to $ 1.39, but this was $ 0.24 better than the analyst estimate of $ 1.15.

Intel’s revenue also fell 6% year-over-year to $ 18.6 billion, but surpassed the Wall Street average of $ 17.86 billion. Intel’s quarterly revenue and earnings statistics for the last 2 years are available here.

Intel Predictions

The company’s management expects in the second quarter of 2021:

  • EPS of $ 1.05, down 17% from $ 1.23 in the second quarter of 2020 and down from analysts’ forecast of $ 1.09;

  • Revenue, according to Intel’s forecast, will also decline – by 11% to $ 17.8 billion, but this is above the average analytical forecasts of $ 17.55 billion.

For the full fiscal year 2021, Intel expects to receive:

  • profit of $ 4.60, – below last year’s value of $ 5.3, but higher than forecast of $ 4.58;

  • revenue of $ 72.5 billion – while less than last year’s record 77.87 billion, it is also above analyst expectations of $ 72.2 billion.

Intel Quarterly Report Analytics

Intel’s first-quarter report released Thursday was the first under new CEO Pat Gelsinger.

Gelsinger commented: “This is a pivotal year for Intel. We are laying our strategic foundation and investing to accelerate our trajectory and capitalize on the explosive growth in semiconductor manufacturing that is at the heart of our increasingly digital world. ”

Intel announced in March that it plans to spend $ 19bn – $ 20bn in capital expenditures, which include spending to build two new chip factories in Arizona and expand existing capacity at factories in the US and Europe. Global manufacturers of technology are faced with a global shortage of microcircuits and Intel plans to benefit from the shortage of supply.

Intel’s quarterly sales of PC chips rose $ 10.6 billion, surpassing analysts’ forecasts of $ 10.17 billion, with Gelsinger said he sees no signs of declining demand for PCs.

But Angelo Zino, senior equity analyst at CFRA Research, said he expects the PC market to “weaken” as COVID-19 vaccines are widely distributed around the world and workers return to offices.

Analysts are still skeptical about Intel’s near-term prospects, pointing to a loss in market share for data center chips and lower margins amid growing competition and significant capital investment.

Intel’s first-quarter revenues from data center products (a division of the Data Center Group) fell 20% to $ 5.6 billion, below analyst estimates of $ 5.89 billion.

Earlier this month, Intel unveiled its new flagship chip for data centers, the 3rd generation Xeon Scalable. However, investors remain concerned that Intel is gradually losing market share and its competitor AMD (AMD) is offering alternatives with improved technology and lower prices. Nvidia (NVDA) also recently introduced its Grace data center chip.

Delays in chip production have been disastrous for the company. In 2020, Intel lost customers such as Amazon (AMZN) and Apple (AAPL): Amazon developed its own data center chip based on Arm Holdings technology, and Apple ditched Intel chips in iMac computers in favor of its own M1 chips, which allowed to make them thinner and more powerful.

Intel is the only giant semiconductor company in the United States that designs and manufactures its own chips. The difficulty lies in the lack of third-party components required for production, which Intel purchases from other companies, mainly in Asia. In yesterday’s report, Intel reiterated that supply shortages could affect its sales this year.

Investors see declining earnings as a key challenge for Intel, with competitive pressures and plans for large capital expenditures suggesting that this problem may persist for years to come.

Intel said its gross margin, a percentage remaining after deducting manufacturing costs, was 55.2%, more than five percentage points lower than in the same period in 2020. It is a key indicator of the sustainability of production and product pricing. Intel has historically posted margins in excess of 60%.

Intel shares are up 25.6% since early 2021, after falling 17% in 2020.

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