By Arsheeya Bajwa and Max A. Cherney
(Reuters) -Intel forecast second-quarter revenue and profit below market estimates on Thursday, as it faces weak demand for its traditional data center and personal computer chips amid efforts to build its contract manufacturing business.
Shares of the Santa Clara, California-based company fell close to 6% in extended trading.
The company expects second-quarter revenue in the range of $12.5 billion to $13.5 billion, compared with analysts’ average estimate of $13.57 billion, according to LSEG data.
Intel forecast second-quarter adjusted earnings of 10 cents per share, also below expectations.
Enterprises have prioritized spending on advanced and speedy AI server chips, hurting demand for Intel’s central processing units (CPUs), which have been the mainstay chip powering data centers for decades.
According to analysts, surging demand for graphics processing units (GPUs) useful for AI applications has also reduced the appetite for CPUs, which are Intel’s main product.
Intel’s total revenue of $12.72 billion in the first quarter marginally missed expectations of $12.78 billion. Sales at its data center business rose 5% to $3 billion during the period.
Nvidia’s powerful GPUs dominate the AI market, as large and small companies have sought to acquire tens of billions of dollars worth of its processors.
Still, constrained supply for these advanced and speedy processors has left Intel with the opportunity to capitalize on the towering demand, though it is a late entrant in the market.
Intel forecasts more than $500 million in revenue from its Gaudi AI chips this year, CEO Patrick Gelsinger told Reuters on Thursday.
Preliminary results from IDC showed the PC market returned to growth in the first quarter after about two years of declines.
Revenue from the client computing segment, which houses Intel’s PC chips, rose 31% during the quarter.
Intel’s contract manufacturing business, or foundry, is working to catch industry leader TSMC, but its profitability is years away.
Revenue from the foundry business fell 10% in the first quarter.
The company recorded an adjusted gross margin of 45.1% for the first quarter, compared with analysts’ expectation of 44.3%.
Inter-segment eliminations of $4.4 billion were made to prevent double-counting of revenue.
(Reporting by Arsheeya Bajwa in Bengaluru; Editing by Shilpi Majumdar)
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