Intel warns of Q1 nosedive... and its shares follow suit

Pat's gonna need to sell a lotta AI PCs if he wants to make a profit this quarter

Intel execs this week painted a grim picture of early 2024, forecasting steep declines ahead for the company's core businesses.

On the chipmaker's Q4 earnings call, CEO, Pat Gelsinger, focused on Intel's trajectory and long term goals in the fields of compute, AI, and semiconductor manufacturing. Unfortunately, Gelsinger's optimism was quickly overshadowed by CFO David Zinsner's stark financial outlook, which called for Q1 revenues of between $12.2 and $13.2 billion.

"We expect a slightly sub seasonal first quarter from our core product business," he said.

By sub seasonal, Zinsner means a double-digit sequential decline in Intel's Datacenter and AI (DCIA) business unit. The reason? Because, customers are prioritizing accelerators that can run generative AI workloads over CPUs, of course.

Having said that, he highlighted growing demand for Intel's discrete accelerator portfolio, including its GPU Max and Habana Gaudi AI chips, which now have "well over $2 billion" in the pipeline.

That's good news since Intel expects much of its non-core business to take a dive during the first quarter. Zinsner warned of inventory corrections across its Mobileye autonomous vehicle division and newly spun off Programmable Solutions Group (PSG), as well as a "steep drop" in the company's foundry services (IFS) division driven by "cyclical weakness in wafer equipment buying."

"I'll remind you that the rapid pace of delivering five nodes in four years and capacity expansion in support of external foundry commitments remain headwinds," Zinsner said, adding that factory startup costs were likely to eat into the company's margins in Q1.

Combined with the businesses Intel axed in 2023, it expects to lose about $1 billion in revenue across its non-core business units.

Intel also expects telco markets will remain weak throughout the year. We suspect this could have something to do with the fact the chipmaker actually has some competition in this arena following the launch of AMD's Siena CPUs back in September.

There is one bright side: Intel remains optimistic about PC sales in the new year. "Our recent results show the PC remains essential," Zinsner said, talking up the wave of so-called "AI PCs" now hitting the market.

Looking at the most recent quarter, Intel ended the fourth quarter on a mixed note. Revenues during the fourth quarter grew 10 percent year over year to $15.4 billion. Meanwhile, net income topped $2.7 billion.

To Zinsner's point, much of this growth was driven by a rebound in PC sales during the quarter, which grew 33 percent year over year to $8.8 billion. As with past quarters, Mobileye and IFS enjoyed steady year-over-year gains up 13 percent and 63 percent during the quarter.

However, Intel's DCAI and Network and Edge Group (NEX), remained a sore spot for the chipmaker, declining 10 percent and 24 percent during Q4 to $4 billion and $1.5 billion, respectively.

Intel hopes to reverse this trend later this year as its 5th-Gen Xeon family ramps up and its Sierra Forest and Granite Rapids Xeons make their way to market.

While revenues may have been up during the quarter, they slid 14 percent during the 2023 fiscal year to $54.2 billion. And from those revenues, Intel extracted just $1.7 billion in profits, owing to massive losses early in 2023. That's still a lot of money, but, for reference, Intel netted $8 billion in profits in 2022.

Despite the dour outlook, Gelsinger reflected a characteristically positive view of the company's direction, particularly with regard to IFS, which recently announced a partnership with Taiwan's UMC and the opening of Fab 9 in New Mexico following the $3.5 billion retrofit.

Gelsinger may not have given up hope, but the company's investors don't appear convinced as Intel's share price plunged nearly 10 percent by premarket Friday. ®

Want more insight? Read about the tough road ahead for Intel over on The Next Platform.

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