Intel Sees Enterprise Sales Bounce Back, Forecasts Pricey Turnaround

Intel said a “strong recovery” in enterprise sales led to an all-time revenue record for the chipmaker’s IoT Group and a return to growth for the Data Center Group, which nevertheless felt the squeeze by industry supply constraints that also dragged down laptop component sales.

The Santa Clara, Calif.-based company said Thursday that those businesses and others contributed to $19.2 billion in third-quarter revenue, a 5 percent year-over-year increase, as CEO Pat Gelsinger reported that Intel is on time or ahead of time with its next-generation manufacturing processes that he said will restore Intel’s reputation as the semiconductor industry’s “unquestioned” leader.

[Related: Intel CEO Pat Gelsinger: The Silicon Man With The Software Plan ]

“We’re closing the gap on the industry probably even more rapidly than I would have expected just a quarter ago, and as a result of that, these investments will be producing superior products with superior pricing and margins more rapidly than we would have forecast even a quarter ago,” Gelsinger said during Intel’s third-quarter earnings call.

Gelsinger was referring to the new process technology road map outlined in July that he previously promised will give Intel “performance leadership” by 2025.

But the new nodes such as Intel 7, formerly known as Intel’s 10-nanometer SuperFin process, are coming at a steep cost, as Intel CFO George Davis outlined in the earnings call.

Davis said Intel is forecasting capital expenditures of $25 billion to $28 billion in 2022 “in alignment” with the company’s new IDM 2.0 strategy. At the low end, $25 billion would represent roughly one-third of the $74 billion minimum Intel has forecast for revenue next year.

“We are in a time of accelerated investment and capital, process node acceleration and R&D as the foundation for changing the trajectory of the past few years,” said Davis, who announced his plan to retire from Intel next year in the company’s earnings release.

Intel’s large investments will weigh down on margins over the next couple years, which was the source of concerns for investors on the earnings call. Those concerns were reflected in Intel’s stock price, which was down more than 8.5 percent in after-hours trading Thursday.

But Gelsinger promised a “multiyear recovery” of margins as Intel’s investments in manufacturing will eventually allow the company to leapfrog competitors.

“These investments that we’re making now on our road map will pay off as those products return to leadership,” he said. “Leadership products beget leadership pricing, which begets leadership margins.”

Intel’s Data Center Group revenue grew 10 percent year over year to $6.5 billion in the third quarter. While enterprise sales were the main driver of that growth, the company said any further growth was hampered by “ecosystem supply challenges.”

Gelsinger said one of the biggest challenges was the fact that Intel was lacking components from other suppliers for systems where the chipmaker had adequate supply.

“Overall, the server business is constrained by supply, and this would be things like Ethernet controllers and power supply devices that are holding us back from achieving, and trust me, we would be shipping a lot more units if we weren’t constrained by the supply chain of these other components in the industry,” Gelsinger said in the earnings call.

Those supply chain issues weighed even more greatly on the Client Computing Group, which, after quarters of growth, declined 2 percent year over year.

“Despite all of the challenges of working through the supply constraints, our teams, our factories, our product designers, the software developers are performing so well,” he said. “The execution machine that we have is restoring very rapidly and [with] a deep sense of desire that we can and we will win.”

Meanwhile, the IoT Group’s third-quarter revenue was $1 billion, up 54 percent year over year. Revenue for Mobileye was $326 million, up 39 percent. The Programmable Solutions Group’s revenue was $478 million, up 16 percent. And the Nonvolatile Memory Solutions Group, which Intel is selling to SK Hynix minus its Optane technology, had revenue of $1.1 billion, down 4 percent.RELATED TOPICS:

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