By Jane Lanhee Lee and Chavi Mehta
(Reuters) - Intel Corp (NASDAQ:INTC) said on Thursday it expects to lose money in the current quarter, surprising investors with a bleaker-than-expected outlook for both the PC market and slowing growth in its key data center division.
The company's shares fell 9.5% in trading after the bell.
"We stumbled, right, we lost share, we lost momentum. We think that stabilizes this year," Chief Executive Pat Gelsinger told investors on a conference call. He said Intel has been losing market share in the data center market, a nod at the strength of rival Advanced Micro Devices (NASDAQ:AMD)
Two of Intel's most important markets are showing weakness after two years of strong growth as remote work boomed during the pandemic. Now, the PC industry is struggling with a glut of chips after demand for consumer electronics fell off a cliff and business customers wary of a recession are slowing spending on data centers.
Gelsinger told Reuters that customers also were emptying inventory.
"We expect some of the largest inventory corrections literally that we've ever seen in the industry taking place that's affecting the Q1 guide in a meaningful way," he said.
"Everything hinges on the PC market recovery. AMD isn’t immune to this either," said Wayne Lam, an analyst at CCS Insight. "Don’t think we’ve seen the bottom for INTC...They are not running a sustainable business model."
Intel expects profit margins to fall further after dropping from 58.4% in the fourth quarter of 2020 to 43.8% in the fourth quarter of 2022. "Its safe to say that ambitions to return to a 60% margin in the future is light years away," said CFRA Research analyst Angelo Zino.
GRAPHIC: Intel's profit margin falls as demand crashes (https://www.reuters.com/graphics/INTEL-RESULTS/znpnbzwmbpl/chart.png)
Intel reiterated its medium-term goal of 51-53% gross margin, and 54-58% longer term.
Shares of other microchip companies fell as well, with AMD down 2.6% and Nvidia Corp down 2%.
PC shipments fell 16.5% to 292.3 million units in 2022, per data from research firm IDC, forcing chipmakers to cut back production and slash revenue forecasts.
GRAPHIC: PC Shipments fell steeply in 2022 (https://www.reuters.com/graphics/PCMARKET-RECOVERY/jnpwywwajpw/chart.png)
Shrinking PC demand also pressured Microsoft Corp (NASDAQ:MSFT)'s More Personal Computing segment, which includes Windows, devices and search revenue, leading to a 19% drop in the segment in its second quarter.
Meanwhile, the data center market has also slowed from double-digit growth as businesses cut costs to ride out an economic slowdown.
After Gelsinger returned to the company nearly two years ago, Intel has focused on regaining the lead in chipmaking technology. Outsourcing the chipmaking process has helped rivals like AMD make much smaller and faster chips and outpace Intel's technology.
The company forecast first-quarter revenue in the range of about $10.5 billion to $11.5 billion. Analysts on average were expecting total revenue of $13.93 billion, according to Refinitiv data.
The company expects an adjusted loss of 15 cents per share versus expectations of a 24 cents per share profit.
Revenue in the fourth quarter fell 32% to $14 billion. Analysts on average expected revenue of $14.46 billion.
GRAPHIC: Intel quarterly revenue falls most in at least two decades (https://www.reuters.com/graphics/INTEL-RESULTS/REVENUE/mypmogzxzpr/chart.png)