Intel Corp. (INTC - Get Report) shares extended declines Thursday after it cautioned that its move away from personal computer chips to more competitive markets in logic, memory and data centers will weigh on profit margins over the next three years.
Intel told analysts during a presentation in San Francisco yesterday that gross profit margins would ease to a range of 57% to 60% as it transitions from its traditional 10-nanometer chips to the smaller, more dynamic 7-nanometer offerings that challenge rivals such as Advanced Micro Devices (AMD - Get Report) . Group revenues, Intel said, will grow at a 'low-single digit' pace over the next three years, to a range of $76 billion to $78 billion by 2021, as the PC business flatlines and data center markets expand.
Intel's market share, however, won't rise past 28% over the next three years, giving it the ability to reach $85 billion in sales in the faster-growing portions of the global chip market, a far cry from the near total dominance it once commanded in the global PC market.
"We believe in an expanded market opportunity we can play a bigger role in the success of our customers," CEO Bob Swan told analysts. "Our emphasis is on improving execution, accelerating innovation and evolving our strong culture while making disciplined investments in pursuit of profitable growth."
Intel shares were marked 5% lower by mid-day trading in New York and changing hands at $46.78 each, a move that, along with yesterday's 2.5% slump, wipes out all of the stock's year-to-date gains.
Last month, Intel shares were pummeled after it slashed full-year sales forecasts, and lowered its earnings guidance, even as first quarter profits topped Street forecasts.
"Our conversations with customers and partners across our PC and data-centric businesses over the past couple months have made several trends clear. The decline in memory pricing has intensified," Swan said at the time. "The data center inventory and capacity digestion that we described in January is more pronounced than we expected. And China headwinds have increased, leading to a more cautious IT spending environment."
Intel's transition into data-centric markets, however, will come with stiff challenges from the likes of AMD, which maintained its full-year earnings guidance last month as demand begins to return to global chip markets as data centers and servers around the world renew purchases and the group launches new 7-nanometer Ryzen, Radeon and EPYC processors.
"AMD is having an impact on the business, and it has barely begun shipping its server products, and will likely have a bigger impact than clearly we thought on Intel's margin structure - and likely what Intel thought as well," said BMO Capital Markets analyst Ambrish Srivastava, who lowered his price target on the stock to $50 a share with a 'market perform' rating.
"Intel looks to be responding with a mix of a strong product rollouts coupled with what seems to be an aggressive pricing strategy to counter the AMD threat," he added.