The stock market was engaged in a tug of war on Friday, as major market benchmarks did their best to hold onto their hard-earned gains from earlier in the week. As of 11 a.m. ET, the Nasdaq Composite (^IXIC 0.10%) was the only one of the major indexes to see a slight uptick, having posted the best year-to-date returns four weeks into 2023.
Even as many Nasdaq-listed stocks managed to post gains, there were a couple of key companies in the semiconductor space that dragged on its performance. Intel (INTC 0.64%) and KLA (KLAC 1.28%) were both among the biggest decliners on the Nasdaq, and together, they painted a downbeat picture that pulled some other semiconductor stocks lower as well.
Intel falls on PC weakness
Shares of Intel were down 8% on Friday morning. The semiconductor pioneer reported fourth-quarter financial results late Thursday that showed the full impact of the weakness in the PC market on its overall operations.
Intel's Q4 report was downright ugly. Revenue of $14 billion was down 32% year over year, closing a year in which total sales fell 20% from 2021 levels. Intel reported a loss, and even after making allowances for extraordinary items, adjusted earnings of $0.10 per share were 92% lower than they were in the year-ago period. Earnings for the full 2022 year weighed in at $1.84 per share on an adjusted basis, down 65% from 2021.
Intel's largest business units took the brunt of the hit to sales. The client computing group, which concentrates most heavily on PC desktops and notebooks, saw segment revenue fall 36% from the fourth quarter of 2021. Yet perhaps even more troubling was the fact that Intel's data center and artificial intelligence business also struggled, posting a 33% drop in sales for the period. Gains in the Intel foundry services division and for the Mobileye autonomous driving unit provided minor offsets, but the two units were too small to make a substantial dent in the poor performance elsewhere.
Moreover, Intel doesn't expect things to get better soon. It projected first-quarter sales of $10.5 billion to $11.5 billion, with adjusted losses of $0.15 per share. CEO Pat Gelsinger tried to say that Intel is still making progress with its longer-term strategic transformation, but investors don't see much reason to be confident about the semiconductor company's future.
KLA can't make shareholders happy
Elsewhere among chip stocks, KLA shares were down 5%. The company posted strong gains from year-ago levels, but investors still seemed concerned about what 2023 will bring to the industry more broadly.
KLA's results for the fiscal second quarter ending Dec. 31 looked a lot better than Intel's. Revenue of $2.98 billion was 27% higher than in the year-earlier period, and it exceeded KLA's guidance from its previous earnings report. Adjusted net income of $1.05 billion equated to 23% growth year over year, working out to adjusted earnings of $7.38 per share.
However, KLA does anticipate a considerable slowdown in the seasonally slow winter quarter. Projections for fiscal third-quarter results were for sales of $2.2 billion to $2.5 billion, with adjusted earnings between $4.52 and $5.92 per share. The size of the range that KLA projected itself indicates considerable uncertainty about what the coming year could have in store for the company -- and for semiconductor stocks more broadly.
Cyclical ups and downs are part of how the chip industry works, so there's nothing inherently troubling in seeing KLA and Intel go through downturns. However, what's important is getting in position to benefit from future upswings. At least right now, shareholders don't seem confident that Intel and KLA are making the best moves to maximize long-term returns.
