Intel loses a whopping $500 million

Last week, Intel announced the first major financial loss in decades. Sales of processors for client PCs and data centers fell sharply in the second quarter, seemingly a result of the rapid decline in economic activity caused by inflation and the ongoing war between Russia and Ukraine.

In the second quarter of 2022, Intel’s revenue was $15.3 billion, down 17% year-on-year and 22% sequentially. Moreover, the company’s gross margin fell to 36.5% from 57.1% in the year-ago quarter. The company also posted a half-billion-dollar loss — its first loss in decades.

Pat Gelsinger, Intel CEO, commented:

“This quarter’s results were below the standards we set for the company and our shareholders. We must and will do better. The sudden and rapid decline in economic activity was the biggest driver, but the deficit also reflects our own execution issues.”

Intel experiences loss

Intel’s mainstay Client Computing Group (CCG) saw revenue of $7.7 billion in the second quarter of 2022, down 25% compared to Q2 2021. There are several reasons why Intel’s client CPU and chipset sales have declined so sharply.

First, demand for personal computers in the second quarter was down both sequentially and year-on-year. Second, due to uncertain demand in the coming quarters, PC OEMs are buying fewer CPUs than they are consuming, while preferring to use their existing inventory and depleting existing inventory. That means they will increase their purchases from Intel when their inventories run dry.

Intel’s data center and AI Group’s data center hardware revenue declined to $4.6 billion in the second quarter of 2022, from $5.5 billion in the second quarter of 2021 — a 16% year-over-year decrease. Intel cited three reasons for the decline: competitive pressures from AMD, the drop in average selling price, and depletion of OEM inventories.

Glimmer of hope for Intel

Revenue from Intel’s Network and Edge Group (NEX) was a bright spot as the division managed to grow its revenue to $2.3 billion, up 11% year-over-year. Intel says NEX’s good results were driven by solid sales of its 5G and Ethernet products. Meanwhile, Intel NEX has also started shipments of the Mount Evans 200Gb SoC IPU and ramped up shipments of the latest Xeon D-1700/2700 parts based on the Ice Lake-D microarchitecture.

Bleak prospects

Intel expects revenue of between $15 billion and $16 billion for the third quarter of 2022, a significant decrease from the $19.2 billion in the same quarter last year. Also, the company’s gross margins are expected to come in at 43.2%, down from 56% in Q3 2021, but up significantly from Q2 2022. Given the disastrous Q2 results and general uncertainty, Intel is looking forward to 2022 revenue of $65 billion to $68 billion, down 9% to 13% year over year and $8 billion to $11 billion lower than originally expected.

As a result, the chip giant projects a 44.8% margin in 2022. In order to respond to the weak market, Intel plans to reduce its spending and cut production costs: “We are responsive to changing business conditions, working closely with our customers while remaining focused on our core competencies.” The company will reduce its capital expenditure budget for 2022 from $27 billion to $23 billion.

Image credit: Intel