Analysis For a company hoping to make a big comeback in a few years, things aren’t looking great for Intel.
Thursday he announcement plans to lay off staff and cut billions of dollars in expenses after its third-quarter revenue fell 20%, year-on-year, and its profits fell 85%.
It comes after the US semiconductor giant announced similarly dismal results for the previous quarterand the main problems were the same as today: Intel is suffering major losses with its two biggest moneymakers, server and PC chips.
In Intel’s PC chip business, Client Computing Group, revenue fell 17% year-on-year to $8.1 billion in the third quarter, while operating profit fell 54% to $1.6 billion over the same period. As for the Datacenter and AI Group, things were even worse, with revenue down 27% to $4.2 billion, while operating profit plummeted 99% to an abysmal $17 million. of dollars.
The main culprits for these dismal numbers: individuals and educational institutions were buying fewer laptops while businesses were dramatically slowing their purchases of servers.
Intel made sure to attribute most of this behavior to a “deteriorating” economy, beset by “slowing consumer demand, persistent inflation and higher interest rates”, as it put it. explained in his last 10-K Rating with the United States Securities and Exchange Commission on Friday.
But it’s also clear that the chipmaker continues to face competitive pressure from rival AMD x86 as well as organizations that make Arm-based processors, like Apple, Amazon and Ampere Computing.
During Intel’s earnings call with Wall St analysts this week, CEO Pat Gelsinger admitted that his company’s server processor market share was “not where we wanted it to be,” although that it meets expectations.
The steep drop in server and PC chip revenues prompted Intel to lower its 2022 revenue forecast for the second time this year, by $76 billion. in Aprilin the range of 65 to 68 billion dollars in Julyfor a range of $63-64 billion in company revenue last income.
This means that in its worst-case scenario, Intel now expects to see $13 billion less revenue in 2022 than it forecast several months ago, and that’s assuming the company can successfully execute. its current plan in the fourth quarter. With revenue of $63 billion for 2022, that would mark a 20% drop from Intel’s $79 billion in total sales last year.
These numbers are sobering for a company that has experienced consistent growth and achieved record revenues for the last five consecutive yearsbut they are at least partly the result of Intel’s Manufacturing Missteps this has allowed it to fall behind Asian foundry rivals TSMC and Samsung in next-gen process nodes.
That’s what makes Gelsinger’s comeback plan all the more urgent and difficult at the same time: the company has said it needs to spend billions of dollars over the next few years, as he described it in February, to outperform foundry rivals and return to “process performance leadership” by 2025 while facing increasingly immense economic and competitive pressures.
Investors don’t want to know how Gelsinger’s comeback plan will lead to lower gross margins and cause Intel to go negative this year and then neutral the next two years, before the company expects to really take advantage of the results of its investments. They were, however, pleased to learn that Intel now plans to lay off a “significant number” of employees and cut some products as part of a massive spending cut of up to $10 billion a year. by 2025.
But all of that assumes Gelsinger’s comeback plan will work, and the titan x86’s chips will be far more competitive within a few years.
For what it’s worth, Gelsinger said Thursday that Intel remains on track to achieve “leadership in transistor and power performance by 2025.” And the sentiment already seems to be changing with Intel’s latest PC processors, thanks to the significant gains found in its all-new 13th generation Core processorsalso known by the code name Raptor Lake.
That is to say, Intel hopes better it can fully execute Gelsinger’s comeback plan in the face of growing woes. Because if not, greater challenges may await. ®