What happened

Shares of Intel (INTC -1.13%) fell 10.1% in April, according to data provided by S&P Global Market Intelligence. The processor giant cooled off mightily after a large run-up earlier in the year, which came after the recent appointment of new CEO Pat Gelsinger.

Yet after the first earnings release under Gelsinger last month, the post-appointment optimism met the messier reality of Intel's current situation.

An animated processor with AI printed on it and a cartoon brain coming out of it.

Image source: Getty Images.

So what

Intel released its first-quarter earnings report on April 22. While revenue actually exceeded analyst expectations, buried within the report were some concerning numbers. First, the company's all-important data center revenue was down 20%, and data center operating income was down a whopping 64% on lower average selling prices and higher ramp-up costs.

Moreover, Intel's updated 2021 guidance forecast revenue down 1%, gross margins compressing three percentage points, and earnings per share down 10%. Keep in mind, this is coming in a year in which PC demand and cloud capital expenditures should grow about 15%, according to analysts.

While Gelsinger claimed the decline in data centers was due to inventory digestion on the part of customers and the price declines were due to product mix, skeptics may not believe that since competitor Advanced Micro Devices (AMD -2.38%) delivered blowout earnings in the same quarter, doubling its data center sales.

Now what

Intel had rallied through March of this year, so it wasn't a surprise to see some pullback. Furthermore, the stock is not expensive at just 12.5 times earnings. And Gelsinger has just started his tenure as CEO, so there isn't a reason to panic for Intel shareholders ... at least not yet. 

Nevertheless, Intel is definitely in turnaround mode. Gelsinger announced on the call Intel would be buying back less stock while investing heavily in both ramping up its 7-nanometer node to catch rivals and also building out new fabs for its "IDM 2.0" strategy, whereby Intel will start manufacturing chips for third parties. While Gelsinger pointed to "strong interest" from outside chip designers in Intel's foundry capabilities, that effort will take years, be very expensive, and comes with uncertain ultimate profitability.

Until those new efforts bear fruit, Intel shareholders will have to contend with high uncertainty for quite a while. But on the bright side, the overall industry is booming, which could be enough to propel Intel through this transition period, providing the business executes better under Gelsinger.