Intel, the largest semiconductor maker by revenue, experienced a drop in shares during after-hours trading following the release of its Q1 2024 outlook. While the company’s latest quarter results beat Wall Street estimates, its projected earnings per share and sales for the first quarter fell short of analyst forecasts. This article will delve into Intel’s recent performance and analyze the factors contributing to its outlook.

In the quarter ended in December, Intel reported adjusted earnings per share of 54 cents, surpassing the expected 45 cents. The company’s revenue for the same period amounted to $15.4 billion, slightly exceeding the projected $15.15 billion. These positive results broke a seven-quarter streak of declining revenue for Intel and showcased its ability to rebound.

While Intel’s latest quarter performance was impressive, its outlook for the first quarter of fiscal 2024 left investors disappointed. The chipmaker expects earnings per share of 13 cents, significantly lower than the projected 33 cents. Additionally, Intel predicts sales between $12.2 billion and $13.2 billion, falling short of the expected $14.15 billion. The outlook was influenced by various factors, including weakness in subsidiaries such as Mobileye and its programmable chip unit. Intel also experienced revenue decreases from businesses it divested or spun off.

Despite the challenges faced by Intel’s subsidiaries and other business units, CEO Pat Gelsinger emphasized the health of the company’s core businesses, namely PC and server chips. Gelsinger stated that these segments would perform at the lower end of Intel’s seasonal range in the current quarter. However, he remained optimistic about the overall strength of Intel’s products and its market share.

Transformation Plan and Restating of Results

Intel continues to focus on its five-year plan introduced by CEO Pat Gelsinger, aiming to improve its own branded chips and catch up to Taiwan Semiconductor Manufacturing Company in manufacturing capabilities. The company plans to offer manufacturing services to other companies through its Intel Foundry Services. As part of its transformation, Intel recently restated its past results to account for costs related to internal chip manufacturing.

Cost Reductions and Business Divestments

To streamline its operations and cut costs, Intel implemented workforce reductions and offloaded certain parts of its business. In the past year, the company announced the spinoff of its programmable chip unit and turned its self-driving car subsidiary, Mobileye, into an independent company. By divesting or selling five different business lines, Intel aimed to focus on its core divisions and improve profitability.

Intel’s largest division, Client Computing, which includes laptop and PC processor chips, experienced a 33% increase in fourth-quarter sales, totaling $8.8 billion. This growth indicated a rebound in the PC industry, with strong demand for PC chips in the gaming and commercial sectors. The Data Center and AI division, responsible for server CPUs and GPUs, saw a 10% sales decline to $4 billion. Intel’s Network and Edge department, catering to carriers and networking, reported a sales decrease of 24% to $1.5 billion.

While Intel’s latest quarter results exceeded expectations, the company’s Q1 2024 outlook fell short of analyst forecasts, leading to a drop in its shares. The weak outlook can be attributed to factors such as weakness in subsidiaries, revenue decreases from divested businesses, and sales performance in certain divisions. Nonetheless, Intel remains focused on its transformation plan and aims to improve its own branded chips while venturing into manufacturing services. Investors will closely monitor Intel’s performance in the coming quarters to assess the effectiveness of its strategic initiatives.

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