Intel is poised for earnings drop amid semiconductor shortage2 min read . Updated: 22 Jul 2021, 06:36 PM IST
- CEO Pat Gelsinger pursues turnaround while battling heated competition in chip design and production
Intel Corp. is expected to post a drop in second-quarter earnings as Chief Executive Pat Gelsinger works to turn the chip giant around amid a global semiconductor shortage.
Mr. Gelsinger, since he rejoined Intel in February, has committed to establishing a contract chip-making operation, announced major factory expansions and lured back talent to restore the Silicon Valley icon’s technology prowess. The company also is in talks to potentially buy GlobalFoundries for around $30 billion, The Wall Street Journal has reported, in what would be its biggest ever acquisition and a signal of how serious Mr. Gelsinger is to make Intel a merchant chip producer.
The moves come as demand for chips has been surging, leading to a global shortage and rising prices for some consumer gadgets.
Intel after the bell Thursday is expected to post a roughly 10% drop in second-quarter sales to $17.8 billion and a profit of $4.2 billion, down from $5.1 billion the year prior, according to analysts surveyed by FactSet.
Intel last year agreed to sell its flash-memory manufacturing business to South Korea’s SK Hynix Inc. And while computing demand remains strong, a shift in the laptop market toward cheaper Chromebooks has made the business less lucrative. Laptop shipments were also weaker than usual in the second quarter due to component shortages, which could further crimp Intel’s sales, Citi analysts said in a note.
Wall Street expects sales of Intel’s data-center chips to fall short of the lofty heights of a year ago, when the pandemic drove rapid uptake in the cloud-computing services that rely on such facilities. Intel also faces stiffer competition from Advanced Micro Devices Inc., which has eaten into its dominant share in data-center chips.
Mr. Gelsinger in March first unveiled his turnaround plan, along with more than $20 billion investments in two plants in Arizona. He followed, in May, with a $3.5 billion expansion effort in New Mexico. Additional capacity growth, in the U.S. and abroad, is in the planning stages.
Intel may get help from new government incentives to erect those facilities. A bill earmarking $39 billion for domestic chip manufacturing and billions of dollars more for research and development was approved in the U.S. Senate in June. The House still has to pass its spending measure before it goes to the White House for President Biden’s signature. Europe and Asian countries are luring chip makers with incentives to land more capacity and ensure access to a technology increasingly viewed as crucial for national security.
Intel faces stiff competition in the chip-building market. Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, and No. 2 Samsung Electronics Co. are spending big to stay ahead. In April, TSMC said it would spend $100 billion over three years to grow its capacity, while Samsung plans to invest $116 billion by 2030 to move beyond making computer memory chips.
Rival chip designers that largely rely on TSMC and Samsung to make their processors also are pressuring Intel. AMD, long a distant second to Intel in the market for central processing units, had nearly a 20% share in personal computer CPUs in the first quarter, according to Mercury Research. That compares with just 8.5% in 2017.
Nvidia Corp., which specializes in graphics processing chips, is working on a CPU for data centers that will compete with Intel’s. Nvidia surpassed Intel last year to become the most valuable U.S. chip maker.
Mr. Gelsinger is expected to present more details about the company’s technology plan later this month.
This story has been published from a wire agency feed without modifications to the text
Never miss a story! Stay connected and informed with Mint. Download our App Now!!