Intel (INTC) shares traded firmly higher in pre-market trading after the chipmaker posted a narrower-than-expected first quarter loss and forecast improving profit margins over the back half of the year.
For the three months ending in March, Intel also posted an adjusted loss of 4 cents per share, firmly inside the Street's 15 cents per share loss forecast, with revenues of $11.72 billion.
Client computing revenue fell 38% from last year to $5.8 billion, Intel said, with little overall support from its Data Center and AI division, where sales fell 39% to $3.7 billion. Network and Edge Group sales were down 30% to $1.5 billion.
Intel said it sees sales firming to around $12 billion over the three months ending in June, just ahead of Street forecasts, but noted that it will still likely post an adjusted loss of 4 cents per share for the quarter.
That suggests narrowing margins in PC chips, where Intel is the market leader, with data center demand also lagging amid a glut in global inventories. Intel's gross margin for the first quarter was 34.2%, nearly half of the chipmaker's long-term target of around 60%, with a forecast for 33.2% over the three months ending in June.
CFO Dave Zinsner, however, told investors on a conference call late Thursday that margins would rise "comfortably" into the 40% range over the second half of the year, echoing a broader chip sector recovery forecast earlier this week by Samsung Electronics.
Samsung posted firmer-than-expected first quarter profits late Wednesday, and although its bottom line was the softest in more than a decade, the world's biggest chipmaker forecast a second half recovery.
The group's chip division, the world's biggest, booked a $3.4 billion loss amid what it described as a glut in global chip supplies and a pullback in customer demand. Still, the group spent a record 10.7 trillion won in capex over the quarter, as it prepares for second half growth powered by AI and high-performance chip demand and the impact of inventory run-offs.
"Given the macro uncertainties, Intel didn't provide a full-year outlook for 2023. However, it sees PC market inventory destocking reaching a healthy level by the end of 2Q," said KeyBanc Capital Markets analyst John Vinh, who carries a 'sector weight' rating on the stock. "Overall, Intel projects a modest second-half rebound and sequential growth throughout the year, with gross margins holding above 40%. Further, it reaffirms the $3 billion cost-cutting target for 2023."
Intel shares were marked 6.8% higher in early Friday trading to change hands at $31.85 each, a move that would still leave the stock down 15% for the year.
Earlier this month, data research group IDC noted a "precipitous" decline in global PC shipments over the first quarter, which fell 29% from last year to just 56.9 million, a figure that reflects the 38% slide in Intel's Client Computing Group revenues.
"This steep fall in Intel's PC revenue is no surprise following recent IDC reports of persisted inventory glut and PC shipments contraction," said Third Bridge semiconductors analyst Lucas Keh. "Amidst growing macro uncertainty, fierce competition, and uncertainties in order sentiment and consumer demand, Intel records a 5th consecutive quarterly loss, this most recent its largest margin of loss yet."
