Intel Corp.'s current-quarter revenue forecast disappointed Wall Street, while a sharp rise in planned 2013 capital spending unnerved investors who expect personal computer demand to dwindle.
Shares of the world's leading chipmaker slid more than 5 per cent after it projected 2013 capital spending at $13-billion (U.S.) – plus or minus $500-million – exceeding many analysts' estimates for about $10-billion.
Intel said $2-billion of its increased spending would go toward expanding a facility for researching future manufacturing technology. But some analysts worried that expanding too quickly may create excess capacity that could hurt the bottom line if it has to idle plants.
"People are starting to freak out about the capex," said Sanford C. Bernstein analyst Stacy Rasgon. "They are making the bet this year and hoping for a big revenue lift in 2014. If you think that PCs are not growing that much anymore, then what's going to drive it?"
"The concern is that if I spend a lot of money and I build up my factories, I don't have enough demand to fill them, they have very high fixed costs, and it pulls your margins down," Mr. Rasgon said.
Outgoing chief executive officer Paul Otellini, who plans to retire in May after a successor is identified, said the investment in manufacturing would suppress costs in the long run.
"The leading edge capacity is the lowest cost for us on a per unit basis," Mr. Otellini told analysts on a conference call. "Regardless of what you think the size of the market is, the leading edge fabs are the single greatest asset that we have."
Mr. Otellini said the higher capex is not intended to bankroll a foundry or contract chipmaking business. But he did not rule out manufacturing semiconductors for other chip companies – as long as that did not empower a rival.
In the fourth quarter, Intel's revenue was $13.5-billion, compared with $13.9-billion a year earlier. Analysts had expected $13.53-billion in revenue for the fourth quarter.
It estimated first-quarter revenue of $12.7-billion, plus or minus $500-million. Analysts expected $12.91-billion for the current quarter.
Facing lower demand, Intel said in October it was running factories at less than half of their capacity.
Intel is used to being king of the personal computer market, particularly through its historic Wintel alliance with Microsoft which has led to breathtakingly high profit margins and an 80 per cent market share.
But it has struggled to adapt its technology for smartphones and tablets, a market dominated by Qualcomm Inc., Samsung Electronics Co. Ltd. and Nvidia Corp.
PC makers are struggling to stop a decline in sales as consumers hold off on buying new laptops in favor of spending on more nimble mobile gadgets.
Microsoft Corp.'s long-awaited launch of Windows 8 in October brought touchscreen features to laptops but failed to spark a resurgence in sales that Intel and many PC manufacturers had hoped for.
However, some Wall Street analysts gave Intel high marks for operating efficiency.
"The revenue isn't going to be there, but the margin and expense control is going to stabilize the bottom line," said Cody Acree, an analyst at Williams Financial. "I think it's probably a success if you can be flat in an industry that most people expect to be flat-to-down."
It foresees first-quarter gross margins of 58 per cent, plus or minus two percentage points. Analysts on average expected gross margins of about 56 per cent for the current quarter, according to Thomson Reuters I/B/E/S.
It estimated a 2013 gross margin of 60 per cent, plus or minus a few percentage points. Analysts on average had expected 59 per cent.
Net earnings in the December quarter were $2.5-billion, or 48 cents a share, compared with $3.4-billion, or 64 cents a share, year-ago period.
Analysts had expected 45 cents, and said the surprisingly strong performance was partly due to a lower effective tax rate of 23 per cent. This was below Intel's forecast of about 27 per cent.
Still, shares of Intel fell 5.6 per cent in after hours trade to $21.43, after closing up 2.58 per cent at $22.68 on Nasdaq.
"This is a company that is continuing to spend money to participate in the market. That may concern some investors," said Doug Freedman, an analyst at RBC Capital.