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Intel announces bad news early

As Intel INTC 1.14%

You can prove that it is sometimes necessary to strip off the bandages quickly — but stab it in exactly the same way.

Chipmakers said late Thursday that they expect gross profits to fall in the 51% to 53% range over the next few years, with a significant decline expected. Intel’s gross profit is typically over 60% over the last decade. The company has pursued expensive turnaround plans with the aim of catching up with its rivals in a state-of-the-art production process and launching a foundry business to manufacture chips designed by other companies.

The announcement was made over the phone to discuss the company’s third-quarter results, which was also unimpressive. Intel’s most important data center segment recorded sales growth of 10%, but missed Wall Street estimates for both revenue and operating profit. The company’s PC sales have shrunk following a seventh consecutive quarter of growth. Intel faces the same constraints as other chip makers due to a shortage of major supplies, but PC-producing customers are also constrained by their component shortages and cooling demand following a pandemic-led surge in sales. .. Intel’s share price fell 9% Thursday night after the results and the phone call.

The revised margin forecast was not a big surprise. Many analysts expect a decline in gross margin as part of the company’s turnaround plan, and some analysts expect it to fall below 50%, which Intel hasn’t seen in 20 years. However, most people expected the company to provide those details at an analyst meeting scheduled for next month. However, Intel said Thursday that it had announced bad news early as it decided to postpone the meeting until February as investigations were underway to replace retired George Davis with Chief Financial Officer. rice field. The postponement gives anyone taking over the job the opportunity to participate in the company’s planning process, eliminating the need to drop bombs early in their tenure.

Intel still has a lot of difficult questions to answer when the time comes. CEO Pat Gelsinger said Wednesday that he believed that Intel’s early foundry business could ultimately have “a margin structure very similar to the leaders of this business today.” ....

However, TSMC usually has a lower gross margin than Intel, with an average of just below 50% over the last five years.

And the cost of keeping chip makers competitive will continue to rise. TSMC confirmed in its own third-quarter report last week that it plans to spend about $ 30 billion this year, compared to Intel’s forecast of $ 18 to $ 19 billion. .. Memory chip maker Micron announced a new long-term investment plan earlier this week, which also represents a significant step up in its history.

US chip makers continue to look forward to direct government support. By retreating the analyst meeting, Gelsinger said the company also has “a better view of government investment that we expect to benefit from.” But in the end, Intel needs to convince investors that there is a technical chop to regain pole position. Without it, checks from Uncle Sam would only go this far.

Write in Dan Gallagher at dan.gallagher@wsj.com

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Intel announces bad news early

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