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Why Intel Has Lowered Its Fiscal 2016 Guidance

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Nov. 20 2020, Updated 4:38 p.m. ET

Fiscal 2016 guidance

After a challenging 2015, Intel (INTC) posted optimistic guidance for fiscal 2016 in its fiscal 4Q15 earnings report. But the volatile nature of the semiconductor industry makes it difficult to make accurate projections for the long term. Intel has a history of reporting optimistic annual guidance, whereas its actual growth is generally another story.

Intel has lowered its revenue guidance for fiscal 2016 from the earlier mid-to-high-single-digit growth to mid-single-digit growth. Analysts expect the company’s fiscal 2016 revenue to grow by 5.3%. The company expects revenue declines in the computing segment to be offset by strong growth in the data center, IoT (Internet of things), memory, and programmable solutions businesses.

Why Intel Has Lowered Its Fiscal 2016 Guidance

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Profitability guidance

Intel has lowered its fiscal 2016 gross margin guidance from 63% to 62% due to lower platform volumes. As an impact of restructuring, the company has lowered its expense guidance by $750 million to $20.6 billion as it expects to complete more than 6,000 of the planned 12,000 job cuts by the end of fiscal 2016.

The company has maintained its fiscal 2016 capital expenditure budget at $9.5 billion.

Industry outlook

This lower guidance comes as the overall PC outlook seems bleak. Intel has lowered its PC market forecast from mid-single-digit decline to high-single-digit decline in 2016. Even TSMC (TSM) has changed its revenue PC forecast from a 3% decline to a 6% decline in 2016.

The major market of smartphones is also slowing. Apple (AAPL) and Samsung (SSNLF) are expected to report revenue declines in smartphone sales for the quarter ending in March 2016, largely due to weaknesses in China (MCHI). While this may not impact Intel significantly, it will likely make it difficult for the company to reduce its mobile losses.

Gartner’s forecast

In April 2016, Gartner lowered its global semiconductor revenue forecast from a 1.9% growth to a 0.6% decline in 2016, due to weakness in PC and smartphone sales. The firm has also lowered its 2016 forecast for data center system spending from 3% to 2.1%. However, the firm has stated that growth opportunities exist in the IoT market, though the market is currently too small to offset the declines from PCs and smartphones.

Given Gartner’s predictions, Intel’s mid-single-digit growth also looks optimistic. It remains to be seen if Intel can manage to pull up revenues in the seasonally strong fiscal 2H16. But in the meantime, keep checking in with Market Realist’s Tech, Media, and Telecom page for further updates.

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