Just when it seemed like things were turning around for Intel, the company has hit another stumbling block.
In the past year, Intel has come back from the brink, as chief executive Lip Bu Tan’s turnaround plan seemed to take effect. A series of deals with Nvidia, Softbank and the US government delivered new momentum for the company.
Intel was enjoying a stock-market rally and riding a wave of optimism that, at last, it had reached a turning point.
But then came the chipmaker’s quarterly update late on Thursday, with a lacklustre forecast and a warning of manufacturing problems.
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In first-quarter projections, Intel said revenue and earnings were short of market estimates. Production issues are being blamed, in part at least, for the situation, with Intel also caught offguard by a surge in demand for server chips as the AI boom continues. Intel burned through its stockpiles in the last quarter, and replenishing that will take time.
The less-than-stellar update sent investors scuttling for cover, with shares tumbling more than 16 per cent on Friday. At more than $45, they are still trading far above the $21.69 they languished at a year ago, but it represents a serious slump for the company.
Has Intel miscalculated?
None of this was in Tan’s plan for the company. A focus on high-margin custom silicon, slashing costs and more targeted investment were all mooted as part of an aggressive restructuring of the once-mighty chipmaker. And, until recently, it seemed to be having the desired effect.
The sheer scale of demand for AI server chips has come as something of a surprise, but it also presents a dilemma. Intel can’t move too aggressively to satisfy the server market without hurting its PC customers. At the same time, concentrating on PCs too intently could also prove a mistake.
The AI boom looks likely to take another scalp – affordable computers – as demand has a knock-on effect for component costs. If prices for AI-enabled computers rise significantly, it may hurt demand in that sector.
Turning a company’s fortunes around, particularly when they are an industry juggernaut of Intel’s size, takes time. That was something Tan reminded analysts of in a call, describing it as a “multiyear journey”. But Wall Street is not known for its patience. Intel and its investors will be hoping to see some real progress before its time runs out.
