The forecast highlights the difficulties Intel faces in predicting the global chip market, and the company’s current products are the result of decisions made several years ago. The company, whose stock has risen 40% in the past month, recently launched a long-awaited laptop chip designed to regain its lead in personal computers, even as industry-wide sales are expected to slump due to the memory chip crunch.
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Meanwhile, Intel executives said the company was caught off guard by a surge in demand for central processors for servers that accompany AI chips. Even with its factories running at full capacity, Intel has been unable to keep up with demand for its chips, eroding lucrative data center sales while new PC chips squeeze profits.
“We are disappointed that we will not be able to fully meet market demand in the short term,” CEO Lipbu Tan told analysts on a conference call.
The company expects sales of $11.7 billion to $12.7 billion for the current quarter, compared to analysts’ average estimate of $12.51 billion, according to data compiled by LSEG.
The company expects to break even in the first quarter, compared to its forecast for adjusted earnings of 5 cents per share.
The demand for AI has taken some of the cloud-computing giants by surprise, with them having to scramble to upgrade their aging chip fleets due to “reduced network performance,” Finance Chief David Zinsner said in an interview with Reuters.
“They were all caught a little bit off guard,” Zinsner said.
On a conference call with investors, Zinsner said that even though Intel owns its own factories, it has been slow to change the types of chips it makes and does not manage its factories in anticipation of changes in data center demand.
Two customers involved in contract manufacturing
After years of missteps left Intel struggling in the fast-growing AI chip market and draining its finances, Tan developed a turnaround strategy centered on cutting costs and eliminating management layers while driving a new product roadmap.
Zinsner said Intel is refraining from making significant investments in its next-generation manufacturing process, known as 14A, while it waits for large customers. Like its rivals in the foundry business, Intel has been tight-lipped about its customers, but Zinsner said investors can tell when the company has customers by watching for a surge in capital spending.
Tan said on the conference call that two customers are evaluating the technical details of the 14A technology, a potential step toward creating test chips using it. Intel executives said they expect to know by the second half of this year whether external customers want to use the technology.
Zinsner said the company believes capital spending could remain stable going forward, contrary to previous expectations that it would decline.
“The key insight for investors is that Intel’s turnaround story remains constrained by supply, not demand. This is a frustrating situation that will delay financial recovery despite a competitive product and strong customer interest,” said Michael Schulman, chief investment officer at Running Point Capital.
Mr. Tan also sharply scaled back the contract manufacturing ambitions promoted by his predecessor, Pat Gelsinger, to shore up Intel’s balance sheet after capital-intensive expansion eroded profit margins.
The company has begun shipping its new “Panther Lake” PC chips. It was the first product made using Intel’s make-or-break 18A manufacturing technology, and analysts expected the production increase to hurt profit margins.
During the conference call, Tan said that while 18A yields are in line with Intel’s internal plans, they are “still below where I would like them to be.”
A global shortage of memory chips has driven up the price of memory chips and increased prices for personal computers, an important market for Intel. Zinsner said in a statement that he expects availability to be at its lowest level in the first quarter and improve in the second quarter.
Reporting by Arsheeya Bajwa in Bengaluru and Max A. Cherney in San Francisco. Additional reporting by Stephen Nellis and Noel Randewich in San Francisco. Editing: Sayantani Ghosh and Matthew Lewis
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