Intel stock drops 11% after weak earnings show slowing demand

Pat Gelsinger, CEO of Intel Corporation, holds a semiconductor chip during testimony at the Senate Commerce, Science and Transportation hearing titled Developing Next Generation Technology for Innovation, in the Russell Senate Office Building on Wednesday, March 23, 2022.

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Intel stock fell 11% on Friday, a day after the company reported disappointing second-quarter results that missed the top and bottom results.

Intel’s revenue fell 22% year over year and missed consensus by 14%, the company’s biggest disappointment since 1999, according to Refinitiv data. It ended the quarter with a net loss of $454 million, compared to net profit of $5 billion in the year-ago quarter.

The company also lowered its expectations for the full year. Intel said it now expects adjusted annual earnings of $2.30 per share and revenue of $65 billion to $68 billion, which is below expectations three months ago.

The updated guidance takes into account economic weakness that could cause organizations to postpone PC refresh cycles, Intel chief financial officer David Zinsner told CNBC in an interview. He said small and medium-sized businesses have slowed down their purchases of computers, but the company has resisted.

“We think we’re at rock bottom,” Zinsner said.

Analysts at Susquehanna downgraded Intel shares from neutral to negative and said that while they would like to think it was a one-time reset, the issues remain.

“For decades, Intel has been able to cover up a litany of failed projects, poor acquisitions and strategic weaknesses by pushing Moore’s Law and process leadership,” analysts wrote in a report on Friday. “Unless they regain that leadership (we think that’s unlikely) or change their strategic focus, we expect growth, profitability and cash flow issues to persist at Intel.”

Baird analysts also downgraded Intel, citing concerns about supply chain delays and changes in consumer habits as a result of the pandemic.

“We are increasingly concerned that more than 20 days of inventory in the PC supply chain will take place over quarters, given what we believe are structural changes in PC consumer consumption habits, combined with a seasonally weak first half that would continue to pressure Intel’s utilization rates and gross margin recovery,” they said in a report on Friday.

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