MarketWatch First Take: Intel fails to clear the clouds on its forecast

MarketWatch First Take

While first-quarter results lived up to expectations of a boom in sales of server and PC chips, there was little answer for what is to come for the semiconductor sector, sending stocks down

Intel gave a mildly disappointing forecast for the second quarter, predicting lower-than-expected profits. But as for the second half of the year, who knows?


Bloomberg News

Intel Corp. announced what was generally expected Thursday — a boom in server and PC chips as more consumers work at home during the COVID-19 pandemic — but could not alleviate investors’ fears about the rest of 2020, resulting in declining values across the chip sector.

The first quarter demonstrated that Intel
INTC,
-1.76%

managed to both catch up with its prior demand issues and meet the COVID-19 related surge in demand for PC and server chips. However, it also gave a mildly disappointing forecast for the second quarter, predicting profits lower than analysts expected due to the costs of moving new products to its next-generation 10-nanometer manufacturing process.

“Tailwinds are most evident in the first half of the year on strong demand for mobile compute and related infrastructure on the dynamics of sheltering in place,” Intel Chief Executive Bob Swan told analysts on a conference call. But he added that while the second quarter is expected to see strong demand in the data-center segment continue, the second half has a lot of potential problems.

“Headwinds include the impact of a global recession on [the Internet of Things business] and other markets, particularly industrial and retail, lower automotive production impacting Mobileye and slowing enterprise and government data-center demand,” he said.

In after-hours trading, shares of Intel fell more than 5%, and other chip stocks, including Advanced Micro Devices Inc.
AMD,
-0.03%

, Microchip Technology Inc.
MCHP,
-0.29%

and Applied Materials Inc.
AMAT,
-2.32%

, declined more than 2%. Chip stocks had been outperforming the broader market so far this year: Intel’s shares are down just 1.4% this year and the PHLX Semiconductor Index
SOX,
-1.03%

has declined 9.1%, compared to the S&P 500’s
SPX,
-0.05%

steeper year-to-date decline of 13.4%. 

The world’s largest semiconductor maker did not really tell investors anything they were not already expecting, and kept its comments vague enough about the second half. Stacy Rasgon, a Bernstein Research analyst, had also expected demand to continue into the second quarter.

“It seems possible we may see some Q2 strength as channel inventories get replenished, but bringing the second half into question,” he wrote in a note ahead of Intel’s earnings.

Both Intel and Texas Instruments Inc.
TXN,
-1.35%

, which reported earnings Tuesday, mentioned, respectively, they were “already seeing the impact of a recession” and that “we will approach a likely significant recession” in their conference calls.

So as the second half continues to remain a question — one that Intel and nearly every other company that has reported this week is not yet ready to answer — investors are left to wonder how bad things are going to get.

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