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Intel Shares Slump as Muted 2021 Forecast, Margins Cloud Solid Earnings

As AMD continues to challenge Intel's grip on the personal computing market, CEO Pat Gelsinger sees it as key to the chipmaker's near-term growth.

Intel Corp.  (INTC) - Get Intel Corporation (INTC) Report shares slumped lower Friday after the chipmaker posted stronger-than-expected second quarter earnings but issued a tepid near-term sales forecast that appears compounded by issues in the semiconductor supply chain.

Intel lifted its second-half revenue forecast to $73.5 billion, a $1 billion bump from its previous estimate, with modestly higher forecasts for free cash flow and adjusted earnings, but noted that gross margins will be lower than in part to rising costs linked to the rollout of its 7-nm chips and constraints in the global semiconductor supply chain.

Intel reported headline earnings of of $1.28 a share, up 12.3% from last year, on sales of $18.5 billion, up 2% from a year ago. Analysts surveyed by FactSet were expecting earnings of $1.07 a share on revenue of $17.8 billion.

The composition of its second quarter earnings also gave investors pause, with data center chip revenues -- which usually have a higher margin -- falling 9% to $6.5 billion. Personal computing division revenues were up 6% to $10.1 billion, a figure CEO Pat Gelsinger sees rising into 2022 as well, citing work-from-home demand, replacement cycles and rising penetration in schools and businesses.

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"These trends underpin my belief that we are still in the early stages of a sustainable cycle of PC growth, and our OEM and channel partners have resoundingly affirmed this perspective. Beyond client, we are seeing near-term recovery across traditional data center market, as well as explosive long-term demand from the cloud to the intelligent edge," Gelsinger told investors on a conference call late Thursday. 

"On the other side of the equation, the strong demand environment continues to stress the supply chain," he added. "While I expect the shortages to bottom out in the second half, it will take another one to two years before the industry is able to completely catch up with demand." 

Intel shares were marked 5% lower in early trading Friday to change hands at $53.22 each, a move that would trim the stock's year-to-date gain to around 6.8%.

"We see additional gross margin headwinds as management has elected to not entirely pass through raw material cost increases, possibly to stall (Advanced Micro Devices  (AMD) - Get Advanced Micro Devices, Inc. Report) share gains," said Oppenheimer analyst Rick Schafer, who carries a market-perform rating on the stock.

"While we applaud aggressive measures taken by new management, we take a wait-and-see approach," he added.