Intel sales forecast implies weak end of year amid supply constraints

For the second quarter, Intel reported US$18.5 billion (S$25 billion) in adjusted sales, well above analyst estimates. Taking the second and third quarters into account, CFRA Research analyst Angelo Zino said Intel's slightly higher full-year forecas
For the second quarter, Intel reported US$18.5 billion (S$25 billion) in adjusted sales, well above analyst estimates. Taking the second and third quarters into account, CFRA Research analyst Angelo Zino said Intel's slightly higher full-year forecast implied a shortfall in fourth-quarter sales versus past forecasts. PHOTOS: REUTERS

SAN FRANCISCO • Chipmaker Intel said it still faces supply chain constraints and gave an annual sales forecast that implied a weak end of the year.

The 2021 forecast of US$73.5 billion (S$99.9 billion) in adjusted sales did beat Wall Street tips.

It appeared driven by a strong second quarter and a modestly better-than-expected third quarter, implying a weak fourth quarter. The results sent shares down 2.8 per cent in after-hours trading after the results on Thursday.

Intel, one of the few remaining firms in the processor chip industry that both designs and makes its own chips, has weathered the supply chain woes better than some rivals and is also working to build a business to make chips for others.

Chief executive officer Pat Gelsinger declined to comment on a recent report that Intel is looking to buy GlobalFoundries for US$30 billion to bolster these efforts but told Reuters that he expects industry consolidation to continue.

Intel raised its previous annual forecast US$1 billion from its earlier US$72.5 billion and beat expectations of $72.8 billion, according to Refinitiv IBES data.

Intel expects adjusted third-quarter revenue of about US$18.2 billion, only modestly above estimates of US$18.09 billion, according to Refinitiv data.

"I think investors simply expect more from semiconductor companies in this environment," said Mr Logan Purk, an analyst at Edward Jones. "Even though they did increase revenue guidance, it was only about a 1 per cent increase. A bulk of the change in earnings guidance was due to a lower tax rate."

Mr Gelsinger said Intel could sell more chips if it could make more chips. Even though the firm runs its own factories, it still faces supply constraints from its own suppliers of materials and equipment.

"We are helping them build factories as fast as they can," Mr Gelsinger told Reuters. "But it... just takes a couple of years to fully catch up to this explosive demand we're seeing."

But some analysts do not agree with Intel's rosy view of demand.

Summit Insights analyst Kinngai Chan cited a tame forecast this week from Texas Instruments and said Intel was likely to keep "playing defence" against rivals like AMD with better chips.

"We think the entire semiconductor supply chain will be caught up by (the fourth quarter) as we believe there's rampant double ordering in the supply chain coupled with a moderating end-market demand," Mr Chan said.

For the just-ended second quarter, Intel reported US$18.5 billion in adjusted sales, well above analyst estimates of US$17.8 billion.

Taking the second and third quarters into account, CFRA Research analyst Angelo Zino said Intel's slightly higher full-year forecast implied a shortfall in fourth-quarter sales versus previous forecasts.

This is despite the fourth quarter usually being one of the firm's best quarters as consumers snap up laptops and PCs as holiday gifts.

Intel did disclose that a one-time charge of US$300 million related to its business of selling supercomputers to the federal government will hit the fourth quarter.

Mr Gelsinger, however, told investors on a conference call that he expects the PC market to keep growing into next year, contradicting the predictions of some analysts.

Revenue from Intel's higher-margin data centre business fell 9 per cent to US$6.5 billion in the second quarter, while its PC business revenue rose 6 per cent, both beating Refinitiv estimates.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on July 24, 2021, with the headline Intel sales forecast implies weak end of year amid supply constraints. Subscribe