Friday, August 12, 2022

People don’t buy that many PCs – and Intel feels the billions of dollars burning

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The COVID-19 pandemic made personal computers more important than ever and sales exploded two years in a row. But the good times for PC and chip makers now seem to be fading fast. The slump in Chromebook sales over the past quarter has given way to an even bigger drop that also affects Windows manufacturers, and today chipmaker Intel revealed a 25 percent drop in consumer chip sales. It says a “short-term cyclical slowdown” will shrink the overall PC market by about 10 percent this year.

“Some of our largest customers are reducing inventory levels at a rate not seen in the past decade,” said Intel CEO Pat Gelsinger during today’s earnings call.

Earlier this month, Gartner reported that the global PC market had already fallen 12.6 percent compared to last year. And today, however, Apple also reported a roughly 10 percent drop in its Mac sales Tim Cook suggested: that it may have just sold out of its Mac inventory.

Back to Intel: General, the company report a 22 percent drop in revenue to $15.3 billion for the second quarter of 2022, and profits even turned negative — it lost half a billion dollars this quarter. That’s a 109 percent drop in profits from the $5.1 billion it had in the second quarter of 2021.

Intel plans to increase the prices of its chips later this year. Could that help? The company’s data center operations declined 16 percent in revenue and 90 percent in operating profit.

Mobileye is a bright spot with record quarterly revenue of $460 million and $190 million in profit

However, Intel’s losses are not all the result of declining sales. In fact, the company’s slide deck shows it lost half a billion dollars (operating loss) to launch its disappointing first-generation GPUs. (On the earnings call, Gelsinger says the company won’t hit its GPU target this year, but they’ll hit $1 billion in revenue by the end of the year, and Intel will launch the A5 and A7 Arc desktop next quarter. supply GPUs.)

It also sees a loss of another $155 million to ramp up its foundry services, prompting the company to enter into ink deals to manufacture chips for other companies, including Qualcomm and MediaTek. Building chips for other companies is something the company hadn’t done in the past, but is part of the new plan under Gelsinger.

Crude gains aside, Intel took a big win for that new strategy today: Congress just passed the CHIPS bill that approves $52 billion in funding for companies to manufacture chips in the U.S. that money goes to Intel. It seems extremely unlikely that the funding will actually solve the chip shortage or turn the US into a chip manufacturing powerhouse like its rivals in Asia, but Intel has promised (and temporarily withheld) factories and jobs based on that money.

Intel also revealed today that it is exiting the Optane memory business – which it originally kept despite selling the rest of its SSD business to SK Hynix in 2020 – and confirmed that it has also exited its drone business. Elon Musk’s brother Kimbal bought Intel’s drone light show business, The register reported earlier this month.

Intel also forecasts lower returns next quarter, but CFO David Zinsner suggests things can improve from then on: “We expect Q2 and Q3 to be the financial bottom for the company.”

By comparison, Qualcomm reported yesterday that the company’s chip business is up 59 percent in the past quarter to $6.1 billion.

To develop…

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