Business Essentials for Professionals


Intel Outlook For Entire Year Clouded By Coronavirus Despite Increased Demand For Pcs In The Short Term

Intel Outlook For Entire Year Clouded By Coronavirus Despite Increased Demand For Pcs In The Short Term
Citing the costs of development of a new PC chip, Intel Corp forecast that its second-quarter earnings will fall below the estimates of the Wall Street. The chip maker however said that it was not possible for it to make a forecast for the full year due to the huge uncertainties in the global economy because of the coronavirus pandemic.
The announcement cause Intel shares to drop by 6 per cent even as executives of the company tried to prepare investors about the potential of a short term gain resulting out of increased demand for chips and processes from cloud computing centers and increased demand for PCs as people stay back home amid the lockdowns could turn into a slump if there is a recession in the global economy as is being forecast by the likes of the International Monetary Fund and the World Bank.
"It's really hard to think about the second half in terms of how demand is going to look compared to what we ultimately thought when we first gave guidance," Chief Financial Officer George Davis told investors on a conference call.
The semiconductor industry has been hit hard by the novel coronavirus pandemic because of disrupted operations due to lockdown orders in countries such as Malaysia which are important cogs in the global chip supply chain. Malaysia later allowed partial resumption of chip manufacturing but the industry there has also suffered supply chain disruptions.
Restrictions imposed by local governments in some cities and sites had forced the company to "temporarily pause" some projects, said Intel Chief Executive Bob Swan said, but also added that the production units of Intel have till now largely been able to meet demand.
There was higher demand for Intel's chips during the first quarter because of stay-at-home orders around the world, said Davis in an interview with Reuters. He also said that there was ab increase in demand for PCs.
He added that there was increased demand for data center chips “as people tried to make sure their infrastructure could match the requirements of having so many of their employees working remotely. And obviously with the cloud, there’s much more activity on the cloud.”

However, due to the costs of readying its "Tiger Lake" 10-nanonmeter processors for the PC market, Intel expects lower gross margins in the second quarter, Davis said. the company plans to start commercial sale of the chip by the third quarter of the current year. He said that this expected cost was instrumental in the company’s profit forecast for the quarter going below of what the Wall Street was expecting.
Davis said that the margin for the full year will however not affected by the costs because the margins from the sale of the new chip will be high and the company will be able to make up some lost ground in the third quarter and because the cost of developing the chip has already been incurred by the company and been accounted for in the second quarter.
"Given the timing of when the product is releasing, it just has a very big impact in one quarter. That explains more than the difference with consensus on EPS," Davis said.
But Intel's ability to recoup the money it is investing in the Tiger Lake chips in the second quarter.

Christopher J. Mitchell

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc