Intel Expects Revenue to Decline as Demand for Chips Slows

Intel Corporation (INTC) is a publicly traded company on the Nasdaq stock exchange. As of December 2019, the company has a market capitalization of $206.85 billion. The company was founded in 1968 and is headquartered in Santa Clara, California.

The company is expected to report a fourth-quarter loss, due to a decline in the market for its chips and increased competition from rivals.

Semiconductor companies have seen a stark shift from a period of shortage to a glut of chips amid recession fears. This shift is driven by the increased demand for all-things digital during the height of the pandemic. Intel has been losing market share to rivals such as Advanced Micro Devices Inc. and companies that have embraced semiconductors based on technology from British chip-design specialist Arm Ltd.

Intel is expected to report a $278 million loss for the final period of the year on sales of $14.49 billion, according to analysts surveyed by FactSet. This would represent a decline of almost 26% from the previous year, and be in line with guidance Intel gave in October for the year’s final three months.

The sales slump is partly due to the sharp downturn in the personal-computer market over recent months. PC shipments fell 28.5% in the final quarter of last year, research firm Gartner said, the worst retreat since it began tracking the market in the 1990s. Consumer spending has been hit by central banks raising interest rates to combat soaring inflation and growing fears of a possible recession.

Intel's central processing units (CPUs) are used in most of the world's PCs. However, revenue from sales of these CPUs is expected to fall by about 25% in the fourth quarter, according to analyst surveys.

Pat Gelsinger, the company's chief executive, has been working to reduce expenses over the past year. So far, they have managed to cut costs by $3 billion and are aiming to reduce expenses by up to $10 billion annually by 2025. This will involve layoffs, as well as other efficiency measures.

Chip companies have reduced production plans and capital spending, including computer-memory giants Samsung Electronics Co. and Micron Technology Inc. This is a key indicator for technology demand.

Sales in Intel's other big division, which handles chips for data centers and internet applications, are expected to fall by around 42% to $4.2 billion.

The company has been lagging behind its chip-making competitors in Asia in terms of speed and transistor size. However, Mr. Gelsinger has laid out a plan to return to leadership within a few years.

Intel's recent decline is also indicative of a wider slowdown for the global semiconductor industry after two years of strong demand, constrained supply chains and widespread chip shortages. However, there are still pockets of high demand in certain sectors. For example, Texas Instruments Inc. reported a 3% drop in sales for the fourth quarter this week, attributing it to declines in all end markets except for the automotive industry.

Despite cutting spending in other areas, Intel is continuing with an ambitious plan to expand its chip-making factory footprint. This is being fueled by potential government grants worth billions of dollars, as well as tax breaks under U.S. legislation passed last year. Intel is therefore building new plants in Arizona, Ohio and Germany, and expanding its operations elsewhere.

Intel executives said they remain committed to major projects, though the company has pushed back the start of construction on its facilities in Germany against the worsening market outlook. To save money, the company has made other moves, such as reducing its workforce.