Intel's Stock Plunges The Most Since 2021 Amid Setbacks On CEO's Turnaround Plan

Intel Corp. witnessed its steepest stock decline in over two years, plunging 12% to $43.50 in New York trading. The disappointing forecast for the first quarter, falling significantly short of Wall Street estimates, has reignited concerns about the once-dominant chipmaker's ability to execute its long-promised turnaround under Chief Executive Officer Pat Gelsinger.

The first-quarter projection for sales and profit indicates a challenging road ahead for Gelsinger in restoring Intel's former prowess. While the personal computer business shows signs of recovery, the lucrative market for data centre chips is experiencing a decline in demand. Additionally, Intel faces headwinds in programmable chips, components for self-driving vehicles, and a struggling semiconductor business serving other companies.

Wells Fargo analyst Aaron Rakers deemed the stock selloff justifiable, raising questions about Intel's ability to find its footing amidst competitors capitalizing on an ongoing AI server capex cycle. The stock's tumble was the most significant intraday decline since October 2021, compounding a 1.4% decrease earlier in the month, trailing the Philadelphia Stock Exchange Semiconductor Index's 7.1% advance.

Intel's sales forecast for the first quarter is $12.2 billion to $13.2 billion, well below the average analyst estimate of $14.25 billion, according to Bloomberg data. Projected profit stands at 13 cents a share, excluding certain items, compared to the expected 34 cents. During a conference call with analysts, Gelsinger admitted that the first quarter hadn't gone as well as hoped but expressed optimism about improvement throughout the rest of 2024.

Crucial to Intel's resurgence is its push into the foundry industry, manufacturing chips for other companies. While Intel committed significant investments to this endeavour and revealed $10 billion worth of "lifetime deal value" orders, the company has yet to disclose the names of large customers participating in the project. Gelsinger acknowledged the need to secure more substantial deals to meet expectations.

In the competitive chip sector, Nvidia Corp. and Advanced Micro Devices Inc. remain darlings of the stock market, expected to benefit from increased spending on artificial intelligence-related infrastructure. Gelsinger asserted that Intel would make strides in the market for AI accelerators, similar to Nvidia's chips, as the growing AI industry bolsters demand for Intel's regular data centre processors.

However, Intel's efforts to upgrade facilities will impact profitability in the short term, with a gross margin of 44.5% in the first quarter, falling short of the estimated 45.5%. This is a significant decrease from Intel's pre-2019 profitability, which typically exceeded 60%.

In the fourth quarter, Intel reported earnings of 54 cents a share on sales of $15.4 billion, surpassing analysts' estimates of 44 cents profit and $15.2 billion in revenue. Notably, data centre sales were $4 billion, slightly below the $4.08 billion projection, while client computing, Intel's PC chip business, exceeded estimates at $8.84 billion compared to an expected $8.42 billion.

Intel's challenges extend to the server market, where it once boasted a market share of over 99%. Increasing competition, particularly from longtime rival AMD, and a shift in spending patterns have impacted Intel's dominance. Major technology spenders like Amazon.com Inc.'s AWS and Microsoft Corp. are designing their own processors, posing additional challenges for Intel.

Adding to the uncertainty is Intel's partially spun-off division, Mobileye Global Inc., a maker of autonomous driving technology. Earlier this month, Mobileye provided a full-year forecast well below analysts' predictions, casting a shadow on Intel, still the majority owner of the Israeli company.