Intel Sees Macro Environment Weaker Than Anticipated, Hitting Demand for Chips

Semiconductor giant Intel, the 2nd heaviest weight in the SMH ETF presented a negative outlook at the Bank of America Global Technology Conference late Tuesday after the market had closed. The company’s CFO, David Zinsner, said that the macro environment is weaker than Intel anticipated coming into the quarter. Accordingly, he expects customers to reduce inventory levels, negatively impacting demand for INTC’s chips.  Recall when INTC reported Q1 earnings on April 28, it issued downside Q2 EPS and revenue guidance of $0.70 and $18.0 billion, respectively. This update adds to that already doomy outlook. $INTC shares closed down $2.30 or 5.28% at 41.23 on the day.

Citigroup (C) analyst Christopher Danely in a note this morning following Zinsner’s remarks commented that his bear-case scenario on Intel was “taking shape even earlier” than expected. He reiterated his Neutral rating on INTC but noted that he expects INTC to negatively pre-announce or miss its Q2 guidance.

It does appear that Zinser is addressing the Client Computing Group (CCG) which INTC in its Q2 guidance focused on the segment’s weakness with chips for PCs, notebooks, and laptops. This segment experienced a 13% drop in Q1 revenue due to softening demand and component supply constraints resulting from COVID-related lockdowns in China. Covid lockdowns continued longer than anticipated.

INTC’s Data Center and AI (DCAI) segment in the earnings guidance back then generated growth of 22%, driven by robust demand from hyperscalers that fueled strong sales for its Xeon processors.

Intel’s issues are compounded as it is the middle of progressing through a major transition as it expands its manufacturing capacity in the U.S. INTC’s margins are taking a significant hit, dropping by 5.7 percentage points in Q1. Looking ahead, INTC expects gross margin to slip further to 51-53% over the next 2-3 years before improving.

Source: Reuters, TC

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