Analysis For a company hoping for a big comeback in a few years, Intel isn’t looking good.
On Thursday, the company announced plans to lay off employees and slash billions of dollars in spending after third-quarter revenue slumped 20 percent year-on-year and profit 85 percent.
This comes after the American semiconductor giant had reported similarly dismal figures for the previous quarter and the main problem areas were the same as now: Intel suffers big losses with its two biggest revenue drivers, servers and PC chips.
At Intel’s PC chip business, Client Computing Group, third-quarter revenue fell 17 percent year-on-year to $8.1 billion, while operating income fell 54 percent to $1.6 billion over the same period went back. It was even worse at Datacenter and AI Group, with revenue falling 27 percent to $4.2 billion while operating income fell 99 percent to a miserable $17 million.
The main culprits for the bleak numbers: Individuals and educational institutions bought fewer laptops, while companies significantly slowed their server purchases.
Intel made sure that most of the blame for this behavior was placed on a “deteriorating” economy beset by “softening consumer demand, persistent inflation and higher interest rates,” according to its recent 10-K filing with US Securities and Exchange stated exchange commission on Friday.
But it’s also clear that the chipmaker continues to face competitive pressures from x86 competitor AMD, as well as companies that make Arm-based processors like Apple, Amazon, and Ampere Computing.
On Intel’s conference call with Wall Street analysts this week, CEO Pat Gelsinger admitted his company’s server CPU market share “wasn’t where we wanted it to be,” although it was in line with expectations.
The steep drop in server and PC chip revenue prompted Intel to lower its 2022 revenue guidance for the second time this year, from April’s $76 billion to a range of $65-$68 billion in July 63-64 billion US dollars cut in the company’s recent earnings.
That means that in a worst-case scenario, Intel will post 2022 revenue $13 billion short of what it forecast a few months ago, assuming the company successfully executes on its current plan in the fourth quarter. With revenue of $63 billion for 2022, that would represent a 20 percent drop from the $79 billion that Intel made last year.
Those are sobering numbers for a company that’s grown steadily and posted record earnings for the past five straight years, but they’re at least in part the result of Intel’s manufacturing missteps that allowed it to lag behind Asia’s for the next several years Foundry competitors TSMC and Samsung are falling behind. generation process node.
That makes Gelsinger’s comeback plan all the more urgent and challenging at the same time: The company said it needs to spend billions of dollars over the next few years, as it outlined in February, to outperform its foundry peers and return to the “process of performance leadership” by 2025 under forever immense economic and competitive pressure.
Investors aren’t keen on how Gelsinger’s comeback plan will drag down gross margins and result in Intel being cash flow negative this year and then cash flow neutral for the next two years before the company expects to report its earnings to really enjoy investing. However, they were pleased to hear that Intel now plans to lay off a “significant number” of employees and cancel some products as part of a massive cut in spending that could reach as much as $10 billion annually by 2025.
But all this assumes that Gelsinger’s comeback plan works and that the x86 titan’s chips will be much more competitive in a few years.
For what it’s worth, Gelsinger said Thursday that Intel is on track to “achieve transistor performance and power performance leadership by 2025.” And the mood already seems to be changing on Intel’s latest CPUs for PCs, thanks to significant improvements found in the just-released 13th Gen Core processors, also known by the codename Raptor Lake.
That said, Intel better hopes it can fully implement Gelsinger’s comeback plan amid mounting mishaps. Because if this is not possible, greater challenges may await you. ®