People are not buying as many PCs – and Intel feels that many billions of dollars are burning

People are not buying as many PCs – and Intel feels that many billions of dollars are burning

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 seem to be fading fast. Last quarter’s decline in Chromebook sales has given way to an even bigger decline that also affects Windows manufacturers, and today chip maker Intel revealed a 25 percent drop in sales of chips to consumers. It says a “near-term cyclical slowdown” is shrinking 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,” Intel CEO Pat Gelsinger said on 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 Apple reported a roughly 10 percent decline in Mac sales as well Tim Cook suggested that it may have simply sold out of Mac inventory.

Back to Intel: Overall, the company reported a 22 percent revenue decline to $15.3 billion for Q2 2022, and profits actually 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 Q2 2021.

Intel plans to raise the prices of its chips later this year. Can it help? The company’s data center operations fell 16 percent in turnover and 90 percent in operating income as well.

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

However, Intel’s losses are not all from falling sales. In fact, the company’s slide shows that it lost half a billion dollars (operating losses) just to launch its underwhelming first-generation GPUs. (On the earnings call, Gelsinger says the company won’t hit its GPU unit goal this year, but it’s on track for $1 billion in revenue by the end of the year, and Intel will ship A5 and A7 Arc desktop GPUs next quarter.)

There is also a loss of another $155 million to boost its foundry services business, which sees the company ink deals to produce chips for other companies, including Qualcomm and MediaTek. Building chips for other companies is something the company has historically not done before, but is part of the new plan under Gelsinger.

Crude earnings aside, Intel had a big win for its new strategy today: Congress just passed the CHIPS Act that will authorize $52 billion in funding for companies to manufacture chips in the U.S., and it’s believed that a significant portion of that money will go to Intel. It seems highly unlikely that the funding will actually fix the chip shortage or turn the US into a chip-making powerhouse like its rivals in Asia, but Intel has promised (and temporarily withheld) fabs and jobs based on that money.

Intel also revealed today that it is exiting its Optane memory business – which it initially 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 predicts lower returns next quarter as well, but CFO David Zinsner suggests things could improve from there: “We expect Q2 and Q3 to be the bottom line for the company.”

As a point of comparison, Qualcomm reported yesterday that its phone chip business was up 59 percent in the latest quarter to $6.1 billion.

Developing…

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