Intel Shares Open 10% Lower After Disappointing Earnings

Shares slid in off-market trading to open at $27.07 on Friday morning, putting the stock on pace for its largest decline since October 2021.

Semiconductor companies have been sitting on a surplus of chips following a pandemic-driven shortage that was fueled by both supply chain constraints and high demand for digital products.

Intel, still the largest U.S. semiconductor maker by revenue, hasn’t been immune to the shifting dynamics and said Thursday that another shortfall would likely follow in the first quarter of the new year.

The gloomy prospects led more than a dozen analysts to cut their price targets for Intel stock, though none went so far as to downgrade their rating.

Several analysts said that although Intel has warned of recent macroeconomic challenges persisting throughout the first half of 2023, management elected to only provide guidance for the first quarter as visibility into the markets this year remains cloudy.

Among those challenges is stiffening competition, with rivals such as 

Advanced Micro Devices Inc.

and

Nvidia Corp.

snatching up market share as they innovate their “respective technology road maps,” Stifel analyst

Ruben Roy

said in a research note Thursday.

There are lingering questions about Intel’s ability to follow through on its own ambitious technology and product road maps, given its “less-than-stellar track record on technology/product execution,” according to JP Morgan analysts, who are bearish on the stock.

Meanwhile, Intel is facing further competition from players in the PC and data center markets that are looking to internally source their CPU technologies, according to Mr. Roy, who sees “limited upside catalysts to shares in the medium term.”

Revenue from data center clients was down by a third in the fourth quarter, with weakness from cloud and enterprise customers driving significant inventory burn, several analysts said. Intel’s management said Thursday that the softness is expected to continue through the first half of the year before a slight rebound in the second half as China’s enterprise market recovers faster than the cloud computing industry.

Whether or not the downshift is cyclical, Intel is expected to spend a significant amount of cash in the first half of 2023 and hope for a V-shaped recovery if it wants to douse the cash burn in the back half of the year, Credit Suisse analysts said in a research note on Friday. Otherwise, a dividend cut could be on the horizon, they said.

Write to Dean Seal at [email protected]