INTEL said on Thursday it struggled to satisfy demand for its server chips used in AI data centers, and forecast quarterly revenue and profit below market estimates, sending shares down 13 percent in after-hours trading.
The forecast underscores the difficulties faced by Intel in predicting global chip markets, where the company’s current products are the result of decisions made years ago. The company recently launched a long-awaited laptop chip designed to reclaim its lead in personal computers just as a memory chip crunch is expected to depress sales across that industry.
Meanwhile, Intel executives said the company was caught off guard by surging demand for server central processors that accompany AI chips. Despite running its factories at capacity, Intel cannot keep up with demand for the chips, leaving profitable data center sales on the table while the new PC chip squeezes its margins.
“In the short term, I’m disappointed that we are not able to fully meet the demand in our markets,” Chief Executive Officer Lip-Bu Tan told analysts on a conference call.
The company forecast current-quarter revenue between $11.7 billion and $12.7 billion, compared with analysts’ average estimate of $12.51 billion, according to data compiled by LSEG.
It expects adjusted earnings per share to break even in the first quarter, compared with expectations of adjusted earnings of 5 cents per share.
Investors and analysts have hoped that rapid data center buildouts commissioned by large tech companies to advance their AI businesses will drive sales for Intel’s traditional server chips that are used alongside Nvidia’s market-leading graphics processing units.
Demand for AI surprised some of the cloud-computing giants, which have had to scramble in order to upgrade aging fleets of chips because of an “erosion in networking performance,” finance chief David Zinsner told Reuters in an interview.
During the conference call with investors, Zinsner said that despite owning its own factories, Intel faces a lag time in changing the types of chips it makes and that the company was not managing its factories with the expectation that data-center demand would change.
Two customers engaged in contract manufacturing
After years of missteps, Tan has engineered a turnaround strategy centered on cutting costs and eliminating management layers, while championing a fresh product road map.
Intel has held off on investing heavily in its next-generation manufacturing process known as 14A, while waiting for a large customer, Zinsner said. Intel is tight-lipped about its customers, but Zinsner said investors will be able to tell when it wins a customer by looking for a spike in capital spending.
Tan said on the conference call that two customers were evaluating the technical details of the 14A technology, a possible step toward creating test chips. Intel executives said they expect to know by the second half of this year whether external customers want the technology.
Zinsner said the company also believes that its capital expenditure could stay steady, versus previous expectations that it would decline.
With a slew of high-profile investments in Intel last year, investors’ confidence in the company’s revival has been high.
“For investors, the key insight is that Intel’s turnaround story remains supply-constrained rather than demand-constrained; a frustrating position that delays the financial recovery despite competitive products and strong customer interest,” Running Point Capital’s chief investment officer, Michael Schulman, said.
