Intel Slides as Investment Costs Cloud Earnings Beat, Guidance Boost

Intel's $20 billion investment in two new Arizona-based factories could trim near-term profit margins as the chipmaker plays catch-up in the global semiconductor market.
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Intel Corp  (INTC) - Get Report shares slumped lower in early Friday trading after the chipmaker hinted that investments in new manufacturing foundries would likely pressure near-term profit margins, clouding the impact of its first quarter earnings beat.

Intel posted a bottom line of $1.39 per share on sales of $18.6 billion, topping Wall Street forecasts, but noted that current quarter profits would slow to $1.05 per share on revenues of around $17.8 billion.

That guidance appeared to offset a full-year outlook that included improved revenues forecasts of $72.5 billion, gross margins of 56.5% and earnings of $4.60 per share, thanks in part to stronger PC demand linked to work-from-home dynamics . 

"We continue to see very strong demand for PCs with fulfillment challenges on industrywide component and substrate shortages," CFO George Davis told investors on a conference call late Thursday. "In data center, we expect increased demand in the second half as both cloud enterprise and government segments returned to growth."

"Gross margin percent will be lower in the second half of the year predominantly due to increased 7-nanometer start-up costs and industrywide supply constraints impacting client volume and mix," he added. "We expect increased R&D throughout the year as we invest in our road map and IDM 2.0 strategy."

Intel shares were marked 2.7% lower in pre-market trading Friday to indicate an opening bell price of $60.89 each, a move that trims the stock's year-to-date gain to around 22%. 

Last month, Intel said it would invest $20 billion to build two new factories in Arizona as it takes on Samsung and Taiwan Semi  (TSM) - Get Report in the global semiconductor market.

New CEO Pat Gelsinger, who is attempting to breath new life into the struggling tech group following a dismal 2020, said the group will pursue new customers such as Apple  (AAPL) - Get Report once the plants -- often referred to as fabs and foundries -- are up-and-running. Advanced Micro Devices  (AMD) - Get Report and Qualcomm  (QCOM) - Get Reportare also potential clients for the Intel foundry, analysts said, with Credit Suisse suggesting the total addressable market could be as much as $200 billion. 

"Intel posted a first quarter beat and offered mixed second quarter guidance, while it increased its full-year outlook slightly," said KeyBanc Capital Markets analyst Weston Twigg, who held his overweight rating in pace with an $80 price target following last night's earnings report. 

"Intel noted PC strength along with improving enterprise and government demand in DCG (and it called the bottom in Datacenter)," he added. "We're adjusting our estimates moderately to reflect guidance. Intel continues to convey a bullish tone around improved execution and expanding compute and foundry opportunities."