By Paul Ziobro 

Intel Corp. is expected to post lower quarterly sales and profit as new Chief Executive Pat Gelsinger fast-tracks efforts to re-energize the U.S. semiconductor giant against the backdrop of a global chip shortage.

Mr. Gelsinger this month laid out an ambitious strategy for Intel to become a major contract chip maker in addition to making semiconductors to satisfy its in-house requirements. The plan includes a $20 billion spending commitment to build two new semiconductor plants in Arizona.

The CEO, on the job since February, also pledged to make some production capacity available swiftly to help alleviate a broader shortage of chips that has caused disruptions across a range of industries, in particular car production.

The White House this month met with executives from the chip and other industries to help determine what action it should take to address the shortage and strengthen the domestic chip-building industry. President Biden previously pledged to fix the chip shortages and included $50 billion for the semiconductor industry in his expansive infrastructure-spending package.

Intel on Thursday is due to post its first quarterly earnings with Mr. Gelsinger at the helm. Wall Street on average expects the company to report a roughly 10% decline in first-quarter sales to $17.8 billion and net income of $4.3 billion, according to analysts surveyed by FactSet. Intel has said it expected to generate revenue of about $17.5 billion, stripping out revenue from the memory business it plans to sell to South Korea's SK Hynix Inc.

The projected sales drop comes despite strong demand for chips broadly. Vivek Arya, a semiconductor analyst at Bank of America, said that Intel is being held back by several factors. Among those are that a surge in demand for personal computers is centered largely on lower-end devices like Chromebooks, while Apple Inc. is ditching Intel for in-house chip designs on some of its equipment. And after a strong year of spending on data centers, outlays this year are expected to advance at a slower pace, he said.

Mr. Arya expects Intel's sales growth to trail that of the broader sector, which he projects will increase around 15% this year.

Mr. Gelsinger is trying to rebuild a company that has suffered repeated setbacks in making its most advanced chip and that has lost ground to Asian rivals. Mr. Gelsinger last month said the company was making progress on its newest chips, though analysts have said they want more detail.

Intel also has said it would increase outsourcing of some chip production to keep pace, he said.

The company also is contending with increased competition. Nvidia Corp. -- which last year overtook Intel as American's most valuable chip company -- and Advanced Micro Devices Inc. have taken market share. Nvidia this month also said it would start selling central-processing units for data-centers, a market Intel has long dominated. Intel this month introduced an enhanced data-center chip.

Intel's effort to become a contract chip maker also isn't without hurdles. The company has tried to break into that market before, with little success. And its chief rivals, Taiwan Semiconductor Manufacturing Co. and Samsung Electronic Co., are readying their own multibillion-dollar spending plans to expand. TSMC last week raised its capital-expenditure plan for this year to $30 billion while lifting its sales forecast. Samsung has earmarked $116 billion in investment by 2030 to diversify chip production.

Mr. Gelsinger has said Intel is planning additional chip investments. The company could benefit from the bipartisan support in Washington for U.S. chip companies. For instance, Intel is bidding on a Pentagon contract to help fund domestic chip-making to meet government security needs.

Intel last month said it expects revenue this year to decline from $77.9 billion in 2020 to $72 billion, reflecting the memory business being sold. The company has forecast $19 billion to $20 billion in capital spending for the year.

Write to Paul Ziobro at Paul.Ziobro@wsj.com

 

(END) Dow Jones Newswires

April 22, 2021 09:14 ET (13:14 GMT)

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