Intel shares collapse after mixed third quarter results and profit margin warning

Intel Corp. (INTC) – Get the Intel Corporation (INTC) report shares collapsed in pre-market trading after the group reported weaker-than-expected third-quarter sales and said profit margins would shrink as it ramps up manufacturing of tech chips.

Intel’s adjusted net income for the September quarter, at $ 1.71 per share, beat Street’s forecast, but sales are slightly below consensus at $ 18.1 billion thanks in part to weak market share. IT group that offset the gains of its data center division.

The group’s forecast for 2022 calls for revenue in the order of $ 74 billion and capital spending between $ 25 billion and $ 28 billion as it expands its new chip foundry business and moves away from its reliance on towards Apple. (AAPL) – Get the Apple Inc. (AAPL) report, which this week released a recently updated version of its MacBook that included its own M1 semiconductors.

In the short term, however, Intel has said its newer, faster chips will be less profitable when they start their release, adding that profit margins will fall to between 51% and 53% over the next three years. That’s about 3 to 5 percentage points lower than the 2022 forecast of 56.2%.

Free cash flow, forecast at $ 13 billion this year, will drop below $ 5 billion in 2022.

“We have a few years to work, but it will be a great result,” CEO Pat Gelsinger told investors on a conference call Thursday night. “We believe that all of our aggressive lean-ins at this time will be generously rewarded in the marketplace, for our customers and for our shareholders over time.”

Intel shares were down 11% early in Friday trading to switch hands at $ 48.88 each, a move that would wipe out almost all of the stock’s gain since the start of the year.

“Intel provided a preview of the model as the company shifts to a model that includes the significant investments needed to grow its foundry business,” said Ambrish Srivastava, BMO Capital Markets analyst, who lowered its price target. on the $ 4 group, at $ 56 per year. share, following last night’s earnings report. It carries an “outperformance” rating on the stock.

“For 2022, capital spending increases by a significant amount, and free cash flow is going the other way,” he added. “The gross margin will decline in 2022 as the company ramps up its investments in the various nodes, and is expected to remain depressed for 2-3 years.”

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