what is happening
Intel’s revenue and profit have continued to decline amid tough economic times and a years-long effort to regain its technology lead, but layoffs and other cost-cutting measures have helped boost the stock.
Why does it matter
Intel is trying to bring more chipmaking work back to the United States after TSMC in Taiwan and Samsung in South Korea outbid the company.
After months of punishment from skeptical investors, Intel shares rose 10% after the company reported better-than-expected earnings on Thursday. But that was against a gloomy backdrop, as the chipmaker lowered its expectations for full-year results amid tough economic conditions.
Intel reported net income of $1 billion, or 25 cents per share, for the third quarter, an 85% decline from the previous year. Adjusting for items such as stock compensation and restructuring charges, its 59 cents per share profit was well above estimates of 32 cents from analysts polled by Yahoo. Its $15.3 billion in revenue was close to the $15.2 billion expected.
CEO Pat Gelsinger pointed to “deteriorating economic conditions” but said the company is cutting costs as a result, saving $3 billion in 2023 and $8 billion to $10 billion a year by 2025. That will include layoffs, he said during a conference call on the financial results.
Intel shares rose 10% to $28.87 in midday trading on Friday.
Bernstein analyst Stacy Rasgon called the quarter “terrible” in a report Friday, pointing to weakening sales, worsening profit margins and a server processor business that is “running on fumes.” He is also worried about the size of the layoffs: “Cuts seem quick and aggressive, which has a great risk of disrupting current operations.”
But not all analysts had the same view. New Street Research’s Pierre Ferragu said Intel is “entering full mode” and gave the company’s stock a “buy” rating.
Intel lowered its full-year revenue estimate to $63 billion to $64 billion. That’s a drop from $2 billion to $4 billion from three months ago, when Intel first reported serious sales problems in.
Intel is in the midst of a massive transformation under Gelsinger, who hopes to restore the company’s status as a leading chip maker. To do this, Intel is spending heavily on new chip factories, trying to catch up with the production technology already offered by Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung, and compete directly against those two Asian giants with a new foundry business that is building. processors for clients like Qualcomm.
If it succeeds, Intel stands to revitalize the US chipmaking industry and breathe new life into computer hardware that has languished for years. Apple ditched Intel for its own M1 and M2 processors, built by TSMC and offering a compelling balance of performance and battery life.
Gelsinger said Thursday that Intel has stabilized market losses in PCs. But it will be a long time before its second major division, server processors sold to companies such as Dell and Google, has more competitive products to challenge surging AMD.
Before Gelsinger’s return to Intel in 2021, some observers expected Intel to follow in the footsteps of IBM and AMD, shedding its manufacturing business and relying on other foundries to make its processors. But Gelsinger wants to keep the company’s chipmaking operations, with new technology and higher production volume across the foundry business.
“There are three types of semiconductors: You’re either big, very niche, or dead,” Gelsinger said earlier this week. He’s aiming big, but the years-long, ambitious effort hasn’t sat well with investors.
Intel has suffered major declines in its two largest chip groups, which make processors for the computers we buy and the servers that power the data centers of companies like Meta and Google. Revenue from the PC chip group fell 17% to $8.1 billion, while the data center group fell 27% to $4.2 billion.
Progress with Meteor Lake, new server chips
Gelsigner tried to paint a rosy picture of future products.
On the PC side, that included Meteor Lake, a PC chip slated for a 2023 release that incorporates a new 3D stacking technique. Today’s Alder Lake laptop chips and Raptor Lake desktop chips are turning out “amazing numbers,” Gelsinger said.
And for its Xeon line of server processors, Intel has been hampered by delays to its current Sapphire Rapids, but things are going well for its 2023 and 2024 successors, called Emerald Rapids and Granite Rapids, respectively. Gelsinger also touted progress with a low-engine sibling called the Sierra Forest due in 2024.
“We had a particularly good four on the execution front,” Gelsinger said, naming Sapphire Rapids, Granite Rapids, Emerald Rapids and Sierra Forest. “The next three generation products are all making very good milestones, and I really feel like the worst of our execution is behind us.”