For its big comeback, Intel needs to spend money – and it's making less and less of it
- Reference: 1667003190
- News link: https://www.theregister.co.uk/2022/10/29/intel_dilemma/
- Source link:
On Thursday, it [1]announced plans to lay off staff and cut billions of dollars in spending after its third-quarter revenues fell 20 percent, year on year, and profit plunged 85 percent.
This comes after the American semiconductor giant reported similarly bleak results for the [2]previous quarter , and the main problem areas were the same as they are now: Intel is suffering major losses with its two biggest moneymakers, server and PC chips.
[3]
In Intel's PC chip business, the Client Computing Group, revenue dropped 17 percent year-over-year to $8.1 billion in the third quarter while operating income declined 54 percent to $1.6 billion over the same period. As for the Datacenter and AI Group, things were even worse, with revenue declining 27 percent to $4.2 billion while operating income fell by 99 percent to an abysmal $17 million.
[4]
[5]
The main culprits for the dismal figures: individuals and educational institutions were buying fewer laptops while businesses significantly slowed down server purchases.
Intel made sure to put most of the blame for this behavior on a "deteriorating" economy, beset by "slowing consumer demand, persistent inflation, and higher interest rates," as it explained in its latest [6]10-K filing with the US Securities and Exchange Commission on Friday.
[7]
But it's also clear the chipmaker continues to face competitive pressure from x86 rival AMD as well as organizations that are making Arm-based processors, such as Apple, Amazon, and Ampere Computing.
On Intel's earnings call with Wall St analysts this week, CEO Pat Gelsinger admitted his company's server CPU market share was "not where we want it to be," though it was in line with expectations.
The precipitous drop in server and PC chip revenues prompted Intel to lower its forecast for 2022 revenue for the second time this year, from $76 billion [8]in April , to a range of $65 billion to $68 billion [9]in July , to range of $63 to $64 billion in the company's [10]latest earnings .
[11]
That means in its worst-case scenario, Intel now expects to record $13 billion less revenue in 2022 than what it projected several months ago, and that's assuming the biz can successfully execute its current plan in the fourth quarter. At $63 billion in revenue for 2022, that would mark a 20 percent decline from the $79 billion Intel took in total sales last year.
These are sobering figures for a corporation that grew steadily and achieved record revenues for the [12]past five years in a row , but they are at least partially the result of [13]Intel's manufacturing missteps that allowed it to fall behind Asian foundry rivals TSMC and Samsung in next-generation process nodes.
[14]Gelsinger takes ax to Intel after chip sales slump, profit nosedives
[15]TSMC wants to unleash a flood of chiplet designs with 3DFabric Alliance
[16]Chip fab locations more important than oil well placement, says Gelsinger
[17]Your next PC should be a desktop – maybe even this Chinese mini machine
This is what makes Gelsinger's comeback plan all the more urgent and challenging at the same time: the company said it needs to spend several billion dollars over the next few years, [18]as it outlined in February, to surpass its foundry rivals and return to "process performance leadership" by 2025 while facing increasingly immense economic and competitive pressures.
Investors are't keen on how Gelsinger's comeback plan will drag down gross margins and cause Intel to become cash-flow negative this year, then neutral the next two years, before the company expects to truly enjoy the results of its investments. They were, however, happy to hear that Intel now plans to ditch a "meaningful number" of employees and cut loose some products as part of a massive reduction in spending that may reach up to $10 billion annually by 2025.
But this all supposes that Gelsinger's comeback plan will work and that the x86 titan's chips will be much more competitive a few years from now.
For what it's worth, Gelsinger said on Thursday that Intel remains on track to achieve "transistor performance and power performance leadership by 2025." And sentiment already seems to be changing with Intel's latest CPUs for PCs, thanks to meaningful gains found in its just-released [19]13th-generation Core processors , also known under the code name Raptor Lake.
This is to say, Intel better hope it can fully execute on Gelsinger's comeback plan in the face of increasing misfortunes. Because if it can't, greater challenges may await. ®
Get our [20]Tech Resources
[1] https://www.theregister.com/2022/10/28/intel_layoffs_results/
[2] https://www.theregister.com/2022/07/29/intel_q2_earnings/
[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/systems&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=2&c=2Y1ylWvMcHLfn27I02VWpbgAAAAw&t=ct%3Dns%26unitnum%3D2%26raptor%3Dcondor%26pos%3Dtop%26test%3D0
[4] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/systems&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Y1ylWvMcHLfn27I02VWpbgAAAAw&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[5] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/systems&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Y1ylWvMcHLfn27I02VWpbgAAAAw&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[6] https://ir.stockpr.com/intc/sec-filings-email/content/0000050863-22-000038/intc-20221001.htm
[7] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/systems&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=4&c=44Y1ylWvMcHLfn27I02VWpbgAAAAw&t=ct%3Dns%26unitnum%3D4%26raptor%3Dfalcon%26pos%3Dmid%26test%3D0
[8] https://www.intc.com/news-events/press-releases/detail/1541/intel-reports-first-quarter-2022-financial-results
[9] https://www.intc.com/news-events/press-releases/detail/1563/intel-reports-second-quarter-2022-financial-results
[10] https://www.intc.com/news-events/press-releases/detail/1586/intel-reports-third-quarter-2022-financial-results
[11] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_onprem/systems&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Y1ylWvMcHLfn27I02VWpbgAAAAw&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[12] https://www.macrotrends.net/stocks/charts/INTC/intel/revenue
[13] https://www.theregister.com/2020/07/24/intel_7nm_chip_slip/
[14] https://www.theregister.com/2022/10/28/intel_layoffs_results/
[15] https://www.theregister.com/2022/10/28/tsmc_chiplet_3dfabric_alliance/
[16] https://www.theregister.com/2022/10/25/intel_ceo_export_controls_oil_wells/
[17] https://www.theregister.com/2022/10/27/desktop_tourism_mini_desktop_pc/
[18] https://www.crn.com/news/components-peripherals/intel-stock-sinks-after-pat-gelsinger-details-4-year-comeback-plan?itc=refresh
[19] https://www.theregister.com/2022/09/27/intel_13thgen_cpu_innovation/
[20] https://whitepapers.theregister.com/
Investment
Without getting into Intel's competitors, the item that caught my eye was:
"Investors aren't keen on how Gelsinger's comeback plan will drag down gross margins and cause Intel to become cash-flow negative this year, then neutral the next two years, before the company expects to truly enjoy the results of its investments."
So much of what is wrong with our industry, heck, with the economy, is the perversion of the concept of investment.
When "investment" becomes a quarterly or yearly concept it is no longer a true investment. True investments take years to make and, once made, last for years more.
It was the beancounters that dragged Intel into this mess and I had hopes when Gelsinger, an Intel engineer, took over. But now it seems like the beancounters on Wall Street are intent on pulling the rug out from under him.
Remember Drydee Diapers?
The CEO of UNION CARBIDE... the company now dead and buried, wanted to get into the Proctor and Gamble space with Diapers. And some genius named them Drydees.
Intel has now scrapped the future. Once the king of CPU's they allowed AMD to get a pricing foothold. Intel thought they were building cars so they invented the Celeron which was a cheap underpowered Chevy while selling overpriced Cadillacs at the other end and nothing in between that is NOTHING BUT AMD who became Toyota.
After 90 Billion in stock buybacks, the Intel Board brings back Patrick Gelsinger, a retread from the 1980s as if he is the second coming of Steve Jobs. And for his Drydees debut, Gelsinger has punked with the Gov on FAB a low-margin business that is labour-intensive. The perfect type of industry to AVOID. It's the Diaper Business all over again.
Intel certainly has had help from the Federal Gov on destroying its market share. Obama Blocked Intel CPUs that were under Contract by a Chinese firm to build a Supercomputer. There were no secrets, the Chinese requested the chips for this purpose. Obama the great economic genius blocked the sale and 15 months later China was building their own powerful RISC Chips and won the honours of the fastest supercomputer. This effort by the gov to block intel led to INTEL missing the entire handheld market. Asia did not want to be dependent on Intel that politicians controlled.
Then Intel failed at 5G chips, failed at 10nm fab [oh but they are not going to lead the world with 2nm Fab out of Ohio!]. One fail after another but plenty of buybacks. Then Intel Board picks this born-again nut job who has all his focus on FAB while the Intel business units pitch into the sea. Narrow Gated Fab is easily handled by two companies, TSMC and Samsung. Nothing is changing in Asia. Asians who make the electronics and assemble the consumer and server products do not want US components that could be blocked or come under political pressure by US Politicians.
Look at Trump. He was so stupid he didn't know that Android was open-source. Blocking Android only harmed Google's special services. Meanwhile, Huawei developed Android Harmony and replaced all the Google Services with Chinese Domestic Services. Trump was an uninformed idiot. Biden is just following the same protectionist path so US Semiconductors are cooked. Who is suffering? US Semiconductor companies. And even with politicians trying to control ASML and other foreign firms, The demand for US Semiconductors continues to decline.
If you were a phone maker in the North Pole, would you use US-made Semiconductors in your phones? NO because at a whim any politician in Murica could punish your company because of some dispute over natives hunting Polar Bears. This is just this CRAZY WOKE economics now common to both Dems and Republicans. There are no free traders left in Murica... only half-cocked nuts that destroy major US industrial sectors over meaningless WOKE crap and personalities. Asia is not WOKE... It is competitive so they are not buying your BBQ.
Trump and Biden tried to destroy Huawei even resorting to Kidnapping the Founder's daughter. Yet compare the profits of Huawei in the last quarter and the losses of Intel. Protectionism only destroys domestic businesses. Huawei has 40% of the US Sanctioned world to sell their products without competition. Sanctions force US businesses to pull out of those markets. All that effort by companies to build those markets was destroyed in minutes by some dumb politician.
Intel is pitching into the sea. The incredible stupidity of the INTEL CEO to enter FAB where Intel has already failed at 10nm, in Ohio of all places, where independent cost estimates say Intel's fab will cost 300% more than Asian Fab, is selling Drydees at 3x the cost of Pampers. The math doesn't work.
Intel wants to compete with NVIDIA for GPUs, a business already being blocked by Dumb US Politicians. What is the net result? Chinese Biren Technology has a BR100 that compares very favourably with the NVIDIA line. Biden banning US GPUs only harms NVIDIA and INTEL's pretend future business. Intel will not catch NVIDIA and Biren Technology has free access to the giant Asian markets and it's just a startup and only four or five years old. NVIDIA needs to leave the US to save itself from US Political ruin.
Gelsinger is Intel's "Ginni" Rometty. The Board can wait until GINNI GELSINGER destroys the company or they can get rid of him fast. Gelsinger is now in Ax mode, undoubtedly cutting the wrong business groups and pushing the insane Ohio fab lunacy. This is a departure from Intel Core business like no other. It is how GINNI ROMETTY converted IBM from a viable business into a Corpse. Always promise the future... Promise the Drydees.
“Sweatpants are a sign of defeat. You lost control of your life so you bought some sweatpants.”
Karl Lagerfeld
Gelsinger is in bed with the dumbest US Politicians. He is feeding their Marxist Protectionism Lunacy repackaging it as "rebalancing." Protectionism only gives China and Asia the incentive to develop their own competing products. Imagine the US has sanctions on 40% of the world's population or roughly 3.2 billion people. this 3.2 Billion market was removed by Dumb US politicians from the reach of American companies. That void is going to be filled by China and Asian competitors.
Gelsinger gets a lot of press but every time he opens his mouth the rest of the US Semiconductor businesses cringe. The Intel downward spiral is accelerating.
They better have those new processes in the can already
Otherwise these cuts will put them in a bad place if the process nodes they are trying to bring to market founder again. Only they know what is in the skunk works at the moment, so we will have to wait and see. That said, based on their track records, re-investing in the teams getting results and pruning the ones that were happy to cash checks without delivering for the last few years is tough to ague with.
The trick is, does management have the chops to pick the right horses to back. Seems like there is some underperforming dead weight there too.