Intel Drops After Sales Forecast Falls Short of Estimates

Intel Corp. (INTC) dropped the most in 10 months after saying revenue next year will be little changed from 2013 levels, short of analysts’ estimates.

Intel fell 5.4 percent to $23.87 at the close in New York, the biggest decline since Jan. 18. The stock is up 16 percent so far this year.

The world’s largest maker of semiconductors said at an investor meeting yesterday that it will expand access to its factories for other chipmakers, taking advantage of advanced production capabilities and seeking to boost revenue sources amid greater competition. Intel will focus more on providing what customers want, rather than trying to push its own designs, Chief Executive Officer Brian Krzanich said at the meeting.

“You have a company that has all the right tools for success, and you ask why aren’t they able to convert that into revenue and earnings growth?” said Doug Freedman, an analyst at RBC Capital Markets in San Francisco, who rates the stock the equivalent of a buy.

Intel, which has traditionally only made its own chips, is expanding its foundry business, or manufacturing chips to order for other companies.

“We’d become insular,” Krzanich said. “We’d become focused on what was our best product rather than where the market was moving.”

Tough Business

The company said sales would be approximately the same from $52.6 billion in 2013, below the $53.7 billion analysts were projecting, according to the average of estimates compiled by Bloomberg.

Krzanich, 53, who became the company’s sixth CEO in May when he succeeded Paul Otellini, is a former factory manager who ran part of a network of plants that Intel says are the most advanced in the semiconductor industry.

Otellini had said Intel’s plants were closed to competitors. Earlier this year, Krzanich said he would consider changing that stance, and yesterday he confirmed the company’s willingness to make chips for companies that are beating Intel in mobile phones.

“We’re needing some kind of signal or sign that mobile is happening and they’re getting some kind of presence there,” said Betsy Van Hees, an analyst at Wedbush Securities in San Francisco. She has the equivalent of a hold rating on the stock. “The mobile business is an ugly business. It’s very tough.”

‘Ultra Fast’

Intel also said gross margin, the percentage of sales remaining after deducting the production costs, will be in the middle of its target range of between 55 percent and 65 percent, in line with analysts’ estimates, Chief Financial Officer Stacy Smith said yesterday at a meeting for analysts in in Santa Clara, California.

Intel predicts the PC market, measured by units, to be down in the ‘low single-digit’ percent, Smith said. While spending on new plants and equipment in 2014 will be little changed from 2013 at around $11 billion, investments aimed at enabling customers to convert to Intel chips in tablets will hurt total profitability, he said.

Intel Vice President Hermann Eul, who heads the company’s mobile division, said Intel will focus on developing parts for a smaller number of phonemakers with large sales volumes. The company isn’t giving up on mobile, he said.

“Of course, we would like to do better,” Eul said at the meeting. “This market is going ultra fast, and the competition is not standing still while we catch up.”

Mobile Market

The smartphone market will pass 1 billion units this year, growing 40 percent from 2012, according to researcher IDC. Personal-computer shipments are projected to drop 9.7 percent worldwide this year, IDC said in August.

Intel, based in Santa Clara, has yet to garner 1 percent of the handset processor market. Krzanich has said the company needs to speed up the delivery of new products for mobile devices. He addressed the tablet market and said the company plans to have chips in sub-$100 devices next year and ship more than 40 million tablet chips.

The PC decline has led some analysts to question Intel’s plan to spend $10.8 billion on new plants and equipment this year, calling for a reduction in next year’s budget.

The semiconductor maker expects the rate of decline in PC shipments to slow as demand improves at corporations and in some developed markets, said Kirk Skaugen, the general manager of Intel’s PC business.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net

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