SAN FRANCISCO (Reuters) – Intel Corp shares declined 2.5 percent on Wednesday after executives forecast modest profit growth over the next three years, signaling it is likely to lag big rivals as the once-dominant chipmaker catches up in technology.
FILE PHOTO: A sign outside the Intel corporate campus in Hillsboro, Oregon, U.S., April 25, 2018. REUTERS/Caroline Humer/File Photo
Intel once dominated the most important chip market with more than 90 percent share for the brains of personal computers. As PC sales have stagnated, it has expanded into data center processors, memory and networking chips.
That positions Intel as a smaller player in a bigger market. The company said on Wednesday it expects to have just 28 percent market share by 2023, or about $85 billion in sales in a $300 billion addressable market for the chips it makes, according to the company’s forecast.
Chief Executive Officer Bob Swan said on Wednesday the company sees both revenue and earnings per share growing in the “single digit” percentage range over the next three years, with flat PC chip sales offset by “double digit” percentage revenue growth in data center chips.
Swan also said operating margins would remain relatively steady at 32 percent, but that gross margins would decline as the company ramps up its 10-nanometer chip-making technology, which makes chips faster by making their features smaller.
Intel shares dropped in late trading on Wednesday as executives gave the presentation and closed 2.5 percent lower at $49.24.
Kinngai Chan, a Summit Insights Group analyst, said Intel’s forecast means it might grow more slowly than other large chipmakers, especially in terms of profit.
Intel “is admitting to gross margin pressures in the next 2.5 years and that earnings will only keep pace with topline growth,” Chan said. Chan said Intel’s peers were likely to report 5 percent revenue growth in coming years, but with profits growing faster than revenue rather than along with it as Intel has forecast.
Swan gave the long-term outlook less than two weeks after Intel cut its 2019 sales forecast, citing weak data center sales in China.
“We let you down. We let ourselves down,” Swan said of the quarterly results last month.
Swan told investors the primary driver of gross margin pressure was the transition to new chip-making technology. Intel struggled with delays for its 10-nanometer technology, losing its lead in making the smallest chips to rival Taiwan Semiconductor Manufacturing Co Ltd (TSMC). Intel plans to launch 10nm chips for high-end PCs later this year, and for servers early next year.
Swan said Intel plans to deliver even smaller 7nm chips by 2021.
Reporting by Stephen Nellis in San Francisco and Akanksha Rana in Bengaluru; Editing by Phil Berlowitz and Matthew Lewis