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Intel corp.
INTC -0.73%
is expected to report a sharp drop in quarterly revenue, hurt by a rapidly shrinking market for personal computers in which its chips go.
The company after the closing bell Thursday is projected to post sales of about $15 billion during the quarter ended in September, a pullback of more than 21% from a year earlier, according to a FactSet survey of analysts. Net income likely fell about 93% to $494 million, analysts estimate.
Intel and other chip makers cashed in on a boom in computer and electronics sales at the start of the pandemic with the shift to remote work and distance learning. The market turned, however, with high inflation, rising interest rates and recession fears weighing on demand.
Tech companies more broadly are facing some of these pressures, leading to a gloomier-than-expected outlook this week at companies including Microsoft. corp.
MSFT -7.72%
Google parent Alphabet Inc.
GOOG -9.63%
and Facebook parent Meta Platforms Inc. which sent their shares sharply lower. The strong dollar also hurt their earnings.
Intel was one of the worst hit in the chip industry due to its heavy exposure to the PC market. The company posted a surprise loss in the second quarter due to softening PC demand. PC shipments are estimated to have seen a 15% contraction in the third quarter, according to International Data Corp. Analysts expect Intel to report a 21.5% third-quarter drop in sales in the division that includes computer chips, which represents about half of its revenue.
The company is also challenged in the data center market. Intel chips dominate in server farms that process data for companies and governments, but it faces growing competition there from rival Advanced Micro Devices Inc. Intel’s data center division is expected to report a 28% drop in revenue to $4.67 billion for the third quarter, according to FactSet.
The weakness in Intel’s core business comes at a time when it is expanding manufacturing and looking to catch up with rivals in Taiwan and South Korea in the race to build the fastest, most cutting-edge chips. But the ambition is not cheap. Intel CEO Pat Gelsinger, who took the helm last year, unveiled plans to build plants in Arizona, Ohio and Germany, among other expansions. Those projects could cost hundreds of billions of dollars together.
“As Intel moves forward with its long-term strategy, it is now abundantly clear that the road to get there was built on a shaky foundation that is now collapsing as PCs look set to return to pre-COVID levels in the near future,” Bernstein Research analysts said. in a note.
Intel hopes to ease the financial burden of its expansion with incentives in the United States and Europe, where governments are trying to attract chip production with financial incentives. Intel also made an agreement with Brookfield Asset Management of Canada in August to share costs of the expansion in Arizona.
The chip company has listed a small part of its self-driving technology unit Mobileye Global Inc.
on Wednesday, pricing the listing above the top of its target range and earning $861 million. Mr. Gelsinger said at The Wall Street Journal’s Tech Live conference on Monday that the purpose of the IPO was not to raise money but to improve Mobileye for growth. Mobileye’s stock rose 38% in its trading debut.
Signs have begun to emerge that the deteriorating economic outlook is causing a long-term chip shortage to abate. Mr. Gelsinger predicted earlier this year that it could last until 2024.
Chips aimed at markets beyond computers and smartphones have also begun to show signs of declining demand. Texas Instruments Inc.
on Tuesday said it saw weakness in its industrial segment, prompting a selloff in its shares. The chip industry has more recently been hit by US restrictions on some sales to China. Rules put in place this month require chip companies to obtain licenses from the Commerce Department before exporting certain chip-making equipment and high-performance artificial intelligence and supercomputer chips to China. Mr Gelsinger said on Monday that US restrictions were inevitable as the geopolitical rivalry between the countries intensified.
Chipmaker Nvidia corp.
warned that it could lose up to $400 million in quarterly revenue due to the restrictions, and equipment maker Lam Research. corp.
KLA corp.
and Applied Materials Inc.
warned of potential revenues that, combined, amount to billions of dollars in the coming year.
Write to Asa Fitch at asa.fitch@wsj.com
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