Earnings Outlook: Intel stock plummets more than 10% after wide earnings miss that CEO says ‘reflects our own execution issues’

As many expected, Intel cut its outlook for the year, but by more than many expected. Intel expects adjusted earnings of $2.30 a share on revenue of about $65 billion to $68 billion with gross margins of 49%. Earlier in the year, Intel Chief Financial Officer David Zinsner had said he was comfortable with a gross margin forecast between 51% and 53%, and last year Intel Chief Executive Pat Gelsinger had promised margins would remain “comfortably above 50%.”

For the year, Wall Street estimates earnings of $3.34 a share on revenue of $74.46 billion. Last quarter, Intel had doubled down on an optimistic outlook for the year of about $3.60 a share on revenue of about $76 billion with gross margins of 52%, which had placed an enormous pressure to deliver in the second half of the year.

On the call, Zinsner said the company hopes to return to its 51% to 53% range by the fourth quarter.

“The market turbulence and update outlook is disappointing,” Zinsner said on the call. “However, we believe our turnaround is clearly taking shape and expect Q2 and Q3 to be the financial bottom for the company.”

Intel reported a second-quarter loss of $454 million, or 11 cents a share, versus net income of $5.06 billion, or $1.24 a share, in the year-ago period. After adjusting for acquisition-related expenses and other items, Intel reported earnings of 29 cents a share, compared with $1.36 a share from a year ago.

Revenue declined to $15.32 billion from $19.63 billion in the year-ago quarter, for an eighth straight quarter of year-over-year declines. Excluding the company’s divested memory business, the company reported revenue of $18.5 billion in the year-ago period. Gross margins dropped to 44.8% from 59.8% in the year-ago period.

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Analysts had forecast adjusted earnings of 69 cents a share on revenue of $17.94 billion — estimates that had declined steadily over the past three months — based on Intel’s forecast of about 70 cents a share on revenue of about $18 billion and adjusted gross margins of 51%.

“The sudden and rapid decline in economic activity was the largest driver of the shortfall, but Q2 also reflected our own execution issues in areas like product design,” Gelsinger told analysts on the call.

Shares immediately dropped more than 10% after hours, but were down about 7% at last check, as the company’s call with analysts kicked off. Shares finished the day with a 1.2% decline in the regular session to close at $39.71.

Intel reported that second-quarter sales in the important data-center and AI category fell 16% to $4.6 billion, well below the Street’s estimate of $6.19 billion.

On the call, Gelsinger said he expects Intel’s data-center sales to grow slower than the market.

“It’s not a fact we like, but the forecast we see,” Gelsinger told analysts.

Revenue from client computing, the traditional PC group, fell 25% to $7.7 billion, below Wall Street’s estimate of $8.89 billion. 

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One bright point on the call was Gelsinger praising the House passing legislation that will contribute more than $52 billion to the U.S. silicon-wafer fabrication industry that President Joe Biden has promised to sign. Intel, which operates its own fabs, stands to be a major beneficiary.

“Literally, since World War II there might not have been a more important piece of industrial policy that came forward through Congress so we are thrilled by that,” Gelsinger said on the call.

Over the past 12 months, Intel stock has fallen 25%. Over the same period, the Dow Jones Industrial Average  
DJIA,
+1.03%
— which counts Intel as a component —has declined 6.9%, the PHLX Semiconductor Index 
SOX,
+1.15%
has declined 10%, the S&P 500 index 
SPX,
+1.21%
has fallen 7.5%, and the tech-heavy Nasdaq Composite Index 
COMP,
+1.08%
has dropped 17.6%.