Intel’s Hope Of A Comeback Now Faces A Steeper Climb
The big takeaway from Intel’s earnings report last week: things are going to get worse before they get better—a lot better if CEO Pat Gelsinger has his way.
The Santa Clara, Calif.-based semiconductor giant spelled out the various ways it’s experiencing a financial crunch—decreased revenues and lower margins, among other things—in the face of an economic downturn and increased competition during its earnings call last Thursday for the fourth quarter of 2022.
Two major themes surfaced throughout the call: one, that Intel’s numbers are going down, by double-digit percentages in several instances. And, two, declines are expected to continue in the first half of this year while Intel remains cautiously optimistic about revenues and profitability recovering in the second half.
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This is all playing out as Intel continues to push forward—in some cases ahead of schedule—with Gelsinger’s ambitious comeback plan, which aims to put the company ahead of rivals in advanced chip-making capabilities by 2025. At the same time, the company hopes to boost its product lines with its manufacturing gains while also building a competitive contract chip-making business to go against foundry rivals like TSMC.
“We made meaningful progress on several fronts in calendar year , notwithstanding all the challenges, but we readily admit our results and our Q1 guidance are below what we expect of ourselves,” Gelsinger said on the call. “We are working diligently to address the challenges brought on by current demand trends and remain confident in our long-term plans and trajectory.”
Key financial measures like revenue and earnings per share were below Wall Street’s expectations for Intel’s fourth quarter. Other aspects like gross margin and cash flow were even below the expectations the company set out at Intel Investor Day last year.
The disappointing financial results prompted Intel this week to reduce salaries across a wide swath of its employee base, starting at the top with a 25 percent cut to Gelsinger’s pay.
“No words can portray or explain the historic collapse of Intel, with management attempting to blame a worst-ever PC inventory digestion dynamic and macro/China/enterprise to an over 20 percent q/q decline in sales,” Hans Mosesmann, an analyst at Wall Street firm Rosenblatt Securities, wrote in a note to clients last week.
The situation has investors concerned that Intel has a steeper hill to climb to return to growth and higher profitability. After the company’s fourth-quarter earnings report came out, its stock price plummeted by 10 percent before regaining a few percentage points in the last few trading days.
“Gross margins will be under pressure in our opinion regardless of the 5-nodes in four years and new Lake and Rapids CPU derivatives until 2025,” Mosesmann wrote.
Solution providers contacted by CRN said they see the headwinds Intel faces in the market but have faith that the company’s strategy will ultimately be successful.
“I think the investment in fabs is going to pay off quite nicely over the next decade,” said Randy Copeland, CEO of Velocity Micro, a Richmond, Va.-based PC system builder.
What follows are seven things to know about Intel’s earnings situation and how it plans to recover.
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Dylan Martin is a senior editor at CRN covering the semiconductor, PC, mobile device, and IoT beats. He has distinguished his coverage of the semiconductor industry thanks to insightful interviews with CEOs and top executives; scoops and exclusives about product, strategy and personnel changes; and analyses that dig into the why behind the news. He can be reached at [email protected].
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