Intel says costly 10nm ramp will counter PC slowdown

China lockdowns, Apple's homegrown silicon, and more give x86 giant a headache – with an aspirin in reach

Analysis Intel promises that a costly ramp in production of 10nm processors, which includes the forthcoming Sapphire Rapids server chips, will pay off in the second half of the year to counter a slowdown in the PC business.

In the x86 titan's first-quarter earnings call Thursday [PDF], the semiconductor maker stuck with its previous forecast for full-year revenue of $76 billion, even though sales for its biggest moneymaker, the Client Computing Group, are slower than expected in the first half of the year.

The PC business unit saw revenue dip 13 percent year-over-year to $9.3 billion in the first quarter, and that trend is expected to continue in the second quarter, CFO David Zinsner warned on the call. On the other hand, Intel's other business units, including the Datacenter and AI Group and Network and Edge Group, all grew in the first quarter.

Zinsner cited multiple factors that are dragging sales of Intel's PC parts, including Apple's continued move away from Intel's Core silicon. He said there is also lower demand for PCs in the consumer and education markets, which is offsetting growth in the commercial world. Intel is experiencing the impact of no longer selling parts to customers in Russia and Belarus too.

What is creating greater uncertainty for Intel is the recent COVID-19 lockdowns in Shanghai, which Zinsner said is creating new supply and inflation issues that are weighing down the overall PC market. The result is that PC makers are keeping inventory levels low, which means less demand for Intel's parts.

"For the lockdowns in Shanghai, we are estimating the impact to be relatively contained under the assumption that these restrictions are nearing an end," Zinsner said.

"Even under a short lockdown, we anticipate it will take some time for the supply chain to normalize, and if the lockdowns persist or spread beyond Shanghai, we could see more material impacts to our outlook," he added.

Intel hopes to fulfill sales goals with variety of chips

To help it reach its $76 billion goal for the year, Intel is hoping a new batch of 10nm processors, including its Sapphire Rapids server chips, will offset the PC slowdown. This also includes Raptor Lake, a new generation of client processors that will land in the second half of the year, when users are more likely to buy new PCs or make upgrades.

"We're going into a much stronger product line with Alder Lake and Raptor Lake and the reversal of inventories for Raptor Lake and Sapphire Rapids starting to hit there as well, which will be very nice to improve both gross margins as well as the revenue outlook," Intel CEO Pat Gelsinger said.

For Sapphire Rapids, Intel is hoping to ramp up the server CPUs "meaningfully faster" than the company's current Xeon Scalable chips, known as Ice Lake, because it expects heavy uptake from server makers and so-called hyperscalers, according to Gelsinger.   

"Every hyperscaler, every OEM has many SKUs lined up for this. This product will be extremely well respected, accepted and broadly deployed in the marketplace this year," he said.

Intel is hoping growth in its Network and Edge Group, which includes IoT products, will offset PC slowness too.

Gelsinger also pointed to growth potential with the company's expanding lineup of discrete GPUs, which includes the new Intel Arc chips for PCs. The chipmaker's GPU and accelerator plans also include the upcoming Ponte Vecchio and Arctic Sound products for servers, plus its Blockscale ASIC for cryptocurrency mining.

The GPUs and accelerators are expected to bring revenue for the company's new Accelerated Computing Systems and Graphics Group to more than $1 billion at the end of the year.

"All of these give us confidence in the second half," Gelsinger said.

10nm ramp is coming at a cost — for now

While Intel is hoping to fuel a good chunk of its 2022 growth with its 10nm process, the ramp up of such products weighed down on its operating profits for both the Client Computing Group and the Datacenter and AI Group in the first quarter. The former's was down 34 percent year-over-year while the other group saw operating profits decline by 1 percent.

On the flip side, Intel said its gross margin in the first quarter was 53 percent and exceeded its guidance by 100 basis points thanks to improved manufacturing yields and lower factory costs.

But with Intel planning to flood the market with more 10nm CPUs, the chipmaker anticipates that its gross margin will dip to 51 percent in the second quarter due to a buildup of pre-qualification reserves.

"We are going to see a little bit of pressure on 10nm in the second quarter. That's part of the reason we're seeing margins down to the low end of our stated range of 51 percent," said Zinsner.  

However, Zinsner promised that Intel's gross margin will rebound to 52 percent in the second half of the year as the company releases more 10nm products for the masses. "We do expect 10nm to become a tailwind for us as costs improve through the back half of the year," he said.

It's all part of the plan, Gelsinger says

The production ramp is part of Intel's expensive comeback plan to introduce five new nodes in four years, with the goal of surpassing foundry rivals TSMC and Samsung by 2025. This, in turn, will help the company make products that are more competitive with the likes of AMD, Nvidia and others that are using alternative architectures such as Arm and RISC-V.

But while Intel recently reported that its plan is coming together quicker than anticipated, the plan is coming at a massive cost that is expected to weigh down on gross margins for the next few years.

Intel shareholders didn't respond well when the company spelled out the costs of the plan in February, and now they're concerned, in light of Intel's first-quarter financial results, about the company's ability to execute amid several challenges. These concerns were reflected in Intel's stock price, which was down more than 5 percent Friday.

To Gelsinger, though, these are important steps Intel needs to take to return to the top after facing years of setbacks due to manufacturing issues.

"We're fired up, and we believe that this is the greatest turnaround story in history," he said in closing Thursday's call. ®

Other stories you might like

  • Lonestar plans to put datacenters in the Moon's lava tubes
    How? Founder tells The Register 'Robots… lots of robots'

    Imagine a future where racks of computer servers hum quietly in darkness below the surface of the Moon.

    Here is where some of the most important data is stored, to be left untouched for as long as can be. The idea sounds like something from science-fiction, but one startup that recently emerged from stealth is trying to turn it into a reality. Lonestar Data Holdings has a unique mission unlike any other cloud provider: to build datacenters on the Moon backing up the world's data.

    "It's inconceivable to me that we are keeping our most precious assets, our knowledge and our data, on Earth, where we're setting off bombs and burning things," Christopher Stott, founder and CEO of Lonestar, told The Register. "We need to put our assets in place off our planet, where we can keep it safe."

    Continue reading
  • Conti: Russian-backed rulers of Costa Rican hacktocracy?
    Also, Chinese IT admin jailed for deleting database, and the NSA promises no more backdoors

    In brief The notorious Russian-aligned Conti ransomware gang has upped the ante in its attack against Costa Rica, threatening to overthrow the government if it doesn't pay a $20 million ransom. 

    Costa Rican president Rodrigo Chaves said that the country is effectively at war with the gang, who in April infiltrated the government's computer systems, gaining a foothold in 27 agencies at various government levels. The US State Department has offered a $15 million reward leading to the capture of Conti's leaders, who it said have made more than $150 million from 1,000+ victims.

    Conti claimed this week that it has insiders in the Costa Rican government, the AP reported, warning that "We are determined to overthrow the government by means of a cyber attack, we have already shown you all the strength and power, you have introduced an emergency." 

    Continue reading
  • China-linked Twisted Panda caught spying on Russian defense R&D
    Because Beijing isn't above covert ops to accomplish its five-year goals

    Chinese cyberspies targeted two Russian defense institutes and possibly another research facility in Belarus, according to Check Point Research.

    The new campaign, dubbed Twisted Panda, is part of a larger, state-sponsored espionage operation that has been ongoing for several months, if not nearly a year, according to the security shop.

    In a technical analysis, the researchers detail the various malicious stages and payloads of the campaign that used sanctions-related phishing emails to attack Russian entities, which are part of the state-owned defense conglomerate Rostec Corporation.

    Continue reading
  • FTC signals crackdown on ed-tech harvesting kid's data
    Trade watchdog, and President, reminds that COPPA can ban ya

    The US Federal Trade Commission on Thursday said it intends to take action against educational technology companies that unlawfully collect data from children using online educational services.

    In a policy statement, the agency said, "Children should not have to needlessly hand over their data and forfeit their privacy in order to do their schoolwork or participate in remote learning, especially given the wide and increasing adoption of ed tech tools."

    The agency says it will scrutinize educational service providers to ensure that they are meeting their legal obligations under COPPA, the Children's Online Privacy Protection Act.

    Continue reading
  • Mysterious firm seeks to buy majority stake in Arm China
    Chinese joint venture's ousted CEO tries to hang on - who will get control?

    The saga surrounding Arm's joint venture in China just took another intriguing turn: a mysterious firm named Lotcap Group claims it has signed a letter of intent to buy a 51 percent stake in Arm China from existing investors in the country.

    In a Chinese-language press release posted Wednesday, Lotcap said it has formed a subsidiary, Lotcap Fund, to buy a majority stake in the joint venture. However, reporting by one newspaper suggested that the investment firm still needs the approval of one significant investor to gain 51 percent control of Arm China.

    The development comes a couple of weeks after Arm China said that its former CEO, Allen Wu, was refusing once again to step down from his position, despite the company's board voting in late April to replace Wu with two co-chief executives. SoftBank Group, which owns 49 percent of the Chinese venture, has been trying to unentangle Arm China from Wu as the Japanese tech investment giant plans for an initial public offering of the British parent company.

    Continue reading
  • SmartNICs power the cloud, are enterprise datacenters next?
    High pricing, lack of software make smartNICs a tough sell, despite offload potential

    SmartNICs have the potential to accelerate enterprise workloads, but don't expect to see them bring hyperscale-class efficiency to most datacenters anytime soon, ZK Research's Zeus Kerravala told The Register.

    SmartNICs are widely deployed in cloud and hyperscale datacenters as a means to offload input/output (I/O) intensive network, security, and storage operations from the CPU, freeing it up to run revenue generating tenant workloads. Some more advanced chips even offload the hypervisor to further separate the infrastructure management layer from the rest of the server.

    Despite relative success in the cloud and a flurry of innovation from the still-limited vendor SmartNIC ecosystem, including Mellanox (Nvidia), Intel, Marvell, and Xilinx (AMD), Kerravala argues that the use cases for enterprise datacenters are unlikely to resemble those of the major hyperscalers, at least in the near term.

    Continue reading

Biting the hand that feeds IT © 1998–2022