Shares of Intel (INTC -1.96%) dropped on Thursday after the company provided a disappointing three-year outlook at an investor event. The company expects sluggish revenue and earnings growth, and it sees gross margin declining through 2021. The stock was down about 4.6% at 12:30 p.m. EDT today.
Intel expects its PC-centric business to be flat to down over the next three years, not surprising given weak demand for PCs and market share losses to rival Advanced Micro Devices. The data-centric businesses are expected to grow at a high single-digit rate. Overall, Intel expects low single-digit revenue growth through 2021.
Gross margin will be pressured as Intel ramps up its 10nm manufacturing process. The company expects its gross margin to bottom out in 2021, which is when it plans to roll out its 7nm manufacturing process. Earnings per share are expected to rise in line with revenue over the next three years, with free cash flow growing a bit faster.
This weak forecast comes after Intel lowered its full-year guidance following a disappointing first-quarter report. The company expects its revenue to decline this year, driven by weak demand for its data center products. An inventory correction in the data center, along with China-related headwinds and tumbling NAND memory chip prices, are causing big problems.
Intel's three-year outlook assumes that the macro environment remains stable. That may be overly optimistic, given the recent drama surrounding the trade war between the U.S. and China.
Intel will eventually work through the inventory correction in the data center market, but it faces a long-term threat from AMD, which will soon release the second generation of its EPYC server processors. AMD's market share is still minimal, but it looks like a foregone conclusion that Intel will continue to lose share.
With anemic growth on tap for the next few years, the market is souring a bit on Intel.