Profit statements

Intel Profits Plunge as We Stopped Buying All Those PCs

With the COVID spending spree on PCs In the end and with consumers spooked by inflation and a deteriorating economy, Intel’s profits and revenue plunged in the second quarter, the chipmaker said Thursday.

Intel’s own issues, such as quality issues with the chips that fill tech giants’ data centers, were also a major factor. The problems led Chief Executive Pat Gelsinger to issue an apology for the company’s poor results, and the chipmaker saw an 8% drop in its after-hours trading price.

“The results for this quarter were below the standards we set for the company and our shareholders,” Gelsinger said in a statement. “We must and we will do better.”

The results show how difficult Intel will be to return to the forefront of chipmaking and lead the U.S. semiconductor industry to reclaim influence lost to Asia. Intel’s short-term issues pose real risks to long-term plans.

Revenue fell 17% to $15.3 billion in the second quarter, and Intel’s earnings of 29 cents per share were down 76% from a year earlier. Both results were well below Intel’s own forecasts and analysts’ expectations.

It could have been a happier day for Intel. Congress approved the CHIPS and Science Act Thursday, which will provide $52.7 billion in subsidies to chipmakers if President Joe Biden signs it, as planned. This will reduce the cost of a new chip fab, or fab, to $7 billion from $10 billion. These investments are key to Gelsigner’s turnaround plan to catch up with chipmaking rivals in 2024 and then regain its manufacturing lead in 2025.

But this turnaround seems far away. Today’s issues include a sudden drop in PC spending, worries about inflation and the economy combined with Intel’s losses to rivals like AMD in data center sales.

Intel also expects a dismal third quarter. As a result, the company lowered its full-year revenue expectation to a range of $65 billion to $68 billion, well below its earlier guidance of $76 billion. In response, it cut capital spending by $4 billion for the year, now at $23 billion.

When he took over as CEO in 2021, Gelsinger promised lucid assessments of the company’s successes and failures, and on a conference call with analysts he detailed some failures.

Among the issues: Quality issues forced Intel to overhaul its new Sapphire Rapids server chip, delaying shipments; its new graphics chips were hampered by Intel’s immature software; and it is losing share in the server market. “It’s not the facts we like, but it’s what we see,” Gelsinger said.

He and Chief Financial Officer Dave Zinser encouraged analysts and shareholders to keep Intel’s long-term recovery plan in mind, saying the company is in a growth industry and has weathered economic downturns before and has now laid the foundation for a long-term recovery. Upgraded manufacturing processes stay on schedule or ahead of schedule.

“We remain firmly on track to achieve process parity in 2024 and superiority in 2025,” Gelsinger said.

This effort to improve manufacturing goes hand in hand with support for the CHIPS Act in Congress and the White House. Allies — including Intel, which lobbied for the bill — see it as an effort to restore the strength of the U.S. semiconductor industry. Two other companies lead today’s cutting-edge processors, Taiwan Semiconductor Manufacturing Co. (TSMC) in Taiwan and Samsung in South Korea. Intel hopes the CHIPS Act will help raise the US share of chip manufacturing from the current 12% to 30% eventually.

The company expects its outlook to improve in the fourth quarter. This is when PC makers will likely increase chip purchases and new products like the Raptor Lake PC chip will go on sale. This processor will arrive in the fall for desktops and later this year for laptops, Gelsinger said, and will improve performance by more than 10% over current Alder Lake chips.

He has work to convince.

Intel’s “long-term goals remain far-fetched,” Bernstein analyst Stacy Rasgon said in a research note earlier this week, which downgraded its expectations for the chipmaker’s outlook. “Quite frankly, whoever owns the stock isn’t here for the short term…but rather is engaging in a nebulous 5+ year story that’s only just beginning.”