In a disappointing turn of events for Intel, the chipmaker's shares dipped in extended trading on Thursday after the company issued a lackluster outlook for the first quarter of 2024. Despite beating Wall Street estimates for the latest quarter, Intel's projected earnings fell short of analyst forecasts, leading to a decline in stock value.

For the quarter ended in December, Intel reported adjusted earnings per share of 54 cents, surpassing the expected 45 cents. Furthermore, the company recorded revenue of $15.4 billion, exceeding the estimated $15.15 billion. These positive results provided some relief amidst concerns over Intel's performance.

However, looking ahead, Intel's Q1 2024 projections disappointed investors. The company expects earnings per share of 13 cents, far below the LSEG consensus estimate of 33 cents. Additionally, Intel anticipates sales between $12.2 billion and $13.2 billion, falling short of the predicted $14.15 billion. Intel CEO, Pat Gelsinger, attributed this forecast to weakness in subsidiary businesses, such as Mobileye and the programmable chip unit, as well as decreased revenue from divested or spun-off divisions.

Gelsinger reassured analysts that Intel's core businesses, particularly PC and server chips, remained robust and showed no signs of market share loss. Despite this, the overall sales outlook suffered due to factors affecting other segments of the company. Nonetheless, Intel's net income for the quarter stood at $2.7 billion or 63 cents per share, a significant improvement compared to the net loss of $0.7 billion or 16 cents per share reported the previous year.

The fourth quarter of 2023 marked a turning point for Intel, as it recorded a 10% sales growth from $14.04 billion the previous year, breaking a streak of declining revenue over seven consecutive quarters. However, Intel's gross margin declined by 2.6 percentage points annually, settling at 40%. Despite these challenges, Intel shares have risen by over 74% in the past year.

While Intel remains the largest semiconductor maker by revenue, its market capitalization places it below rivals Nvidia and AMD on Wall Street. The rapidly growing demand for AI has led to a shift in the data center market, with cloud providers and tech giants favoring Nvidia's graphics processing units (GPUs) alongside Intel CPUs, as opposed to relying solely on Intel's traditional central processors.

Intel's CFO, David Zinsner, acknowledged the evolving dynamics in the market, stating that the data center saw a shift in spending from CPUs to accelerators in recent quarters. The company aims to address these shifts through CEO Pat Gelsinger's five-year plan, which focuses on catching up to Taiwan Semiconductor Manufacturing Company's manufacturing capabilities while enhancing Intel's own branded chips.

In pursuit of its transformation goals, Intel has been streamlining operations by cutting costs through workforce reductions and divesting smaller business units. Last year, the company spun off its programmable chip division and transformed self-driving car subsidiary Mobileye into an independent entity. Additionally, Intel's revenue from its Intel Foundry Services, which manufactures chips for third-party companies, witnessed a 63% annual increase, settling at $291 million.

Intel's Client Computing group, the largest division encompassing laptop and PC processor chips, reported $8.8 billion in fourth-quarter sales, signaling a 33% growth. The PC industry, after experiencing a two-year slump, has started showing signs of recovery, with strong sales in the gaming and commercial sectors. Meanwhile, Intel's Data Center and AI division saw a 10% sales decline to $4 billion, including server CPUs and GPUs, while the Network and Edge department witnessed a 24% decrease in sales, with revenue standing at $1.5 billion.

Despite the Q1 2024 outlook faltering, Intel expects a positive market expansion this year, driven by renewed growth in the overall PC industry. The company remains committed to its transformation journey and will continue working towards improving its manufacturing services and branded chips.

Intel's shares are likely to face volatility in the coming days as investors digest the mixed results and adjust their expectations accordingly.