Intel pares losses but sheds $9 billion in value on dire outlook, dividend concerns

January 27, 2023 5:59 AM EST
(Updated - January 27, 2023 12:14 PM EST)

Intel (NASDAQ: INTC) has paired losses but remains down 7% mid-day Friday after the chipmaker's dire results and abysmal guidance late on Thursday reinforced the gloom over a sector that is swinging from boom to bust in the aftermath of the pandemic. The results were so bad that some analysts have even questioned if the company can maintain the hefty dividend.

Intel reported a net loss of over $660 million for the fourth quarter, more than twice the $278M consensus, on a 32% drop in sales, as demand from the electronics sector - especially personal computing - slumped. Gross margin fell a whopping 12 percentage points to 43.8%.

The figures corroborated what had already been hinted at in a sharp drop in revenue for Microsoft's (NASDAQ: MSFT) flagship Windows business earlier in the week.

After stripping out one-off items, Intel reported earnings per share of 10 cents on revenue of $14B. Both fell short of expectations, which were for EPS of 21 cents on revenue of $14.5B.

For the market, however, the fourth quarter numbers weren't the worst of it. Intel said it expects to lose as much as 15c a share in the first quarter, on revenue in a range of around $11B. Wall Street analysts had expected $13.9B of revenue and 24c in underlying earnings.

That's due largely to a global backdrop of weakening global demand for PCs: Intel says in its presentation it expects total shipments to be at the lower end of its forecast range of 270-295M this year.

Analysts at Barclays noted that the guidance was below even the weakest forecasts on the Street.

"We readily admit our results and our Q1 guidance are below what we expect of ourselves," CEO Pat Gelsinger told an analysts' call.

Intel continued to be coy about how many jobs it expects to cut this year but repeated its target of cutting $3B in costs this year, rising to between $8-10B by the end of 2025.

Analysts at Credit Suisse said the expected drop in sales put in doubt the company's ability to maintain its dividend, which is currently running at $1.5B a quarter or 36.5c a share.

"We believe will need a V-shaped recovery in 2H to avoid continued cash burn. That unfortunately opens the potential for a dividend cut," CS said in a note to clients.

Despite the bloodbath, analysts at UBS said the good news is that the first-quarter guidance was so bad that they believe it is a bottom.

Further, UBS likes the direction the company is headed strategically - i.e. the separation into a fabless product company and a foundry. However, they note that any valuation creation will take time, and they see compelling investment opportunities elsewhere in the sector.

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