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Intel experiences another kind of meltdown

'We must and will do better' CEO pledges amid big losses, Optane axed, expectations slashed

Intel stock fell by as much as 11 percent in extended trading today after the chip maker reported disappointing second-quarter 2022 financial results.

The Xeon processor giant disclosed revenue of $15.3 billion, down 22 percent on this time last year, for the three months to July 2. Analysts had expected something more along the lines of $17.92 billion. As for profits, for the first time in years, if not decades, there weren't any: Intel recorded a $454 million net loss for the quarter.

This time in 2021, Intel was celebrating a $5 billion profit.

CEO Pat Gelsinger issued a contrite statement. "This quarter’s results were below the standards we have set for the company and our shareholders," he said, "We must and will do better."

The big chief attributed the shortfall to the current economic climate but also to the company's own "execution issues."

CFO David Zinsner likewise said Intel intends to do better. "We are taking necessary actions to manage through the current environment, including accelerating the deployment of our smart capital strategy, while reiterating our prior full-year adjusted free cash flow guidance and returning gross margins to our target range by the fourth quarter," he said.

Second-quarter non-GAAP earnings per share was set at $0.29 by the chip biz, missing analyst expectations by roughly 40 cents. The poor showing prompted Intel to lower its full-year sales guidance to $65-68 billion, down from $73-79 billion. Non-GAAP earnings per share guidance for the year is now $2.30, down $1.30 or 57 percent from predictions.

The revenues for Intel's business units for Q2 2022 were as follows (the drops in operating income perhaps at least partly as a result of a price war with AMD, we reckon):

  • Client Computing Group (CCG): $7.7 billion, -25 percent (operating income down 73 percent)
  • Datacenter and AI Group (DCAI): $4.6 billion, -16 percent (operating income down 90 percent)
  • Network and Edge Group (NEX): $2.3 billion, +11 percent (operating income down 60 percent)
  • Accelerated Computing Systems and Graphics Group (AXG): $186 million, +5 percent
  • Mobileye: $460 million, +41 percent
  • Intel Foundry Services (IFS), the contract-manufacturing unit Intel really hopes will eventually take on TSMC, etc: $122 million, -54 percent

Intel said its CCG and DCAI groups suffered as a result of adverse market conditions. During the company's conference call for investors, Zinsner cited the impact of COVID-19 in China on the supply chain and poor demand among the factors that hindered the corporation's business.

Gelsinger said, "The sudden and rapid decline in economic activity was the largest driver of the shortfall but Q2 also reflected our own execution issues in areas like product design, DCAI and the ramp of AXG offerings. We have an obligation to remain vigilant and to respond to changing business conditions while not losing sight of our long-term goals and opportunities."

Revision time

He promised Intel intends to respond by revising its spending while accelerating the deployment of its Smart Capital strategy and improving product execution.

Intel has previously described this strategy as making more disciplined investments and taking advantage of "government incentives, customer participation and other creative partnerships as offsets to capital spending."

Gelsinger expressed enthusiasm for one such incentive, the bipartisan CHIPS Act, which has now been approved by both the US Senate and the House of Representatives and is expected to be signed by President Biden.

This allocates $52 billion of public money to subsidize the building of fabs, including likely Intel factories, on American soil. At the same time, as we heard on the conference call, Intel is cutting its expected capital expenditure by $4 billion, and lowering expenses, in the face of economic uncertainty and falling demand or need for its silicon.

It also paid a $1.5 billion dividend to shareholders, up five percent year on year. Gotta keep those investors happy.

The chief exec went on to acknowledge the biz has work to do to improve its DCAI segment.

"Over the next couple of years as we rebuild our server product portfolio, we expect to grow slower than the overall data center market," said Gelsinger.

"It's not a fact we like but the forecasts we see. We have a singular focus to regain performance and TCO leadership across all workloads and use cases from enterprise to cloud."

Earlier this month, we reported that Intel plans to raise its chip prices.

Gelsinger also announced casualties: Intel's drone business – as reported by El Reg earlier – and now its Optane memory operation. The latter is shutting down, costing Intel a $559 million inventory write-off. Stay tuned: we'll have more on that on these pages shortly.

He explained, "We further sharpened our focus in Q2 selling our drone business and making the difficult decision to wind down our efforts in Optane as we embrace CXL, a standard which Intel Corporation pioneered."

"We have now exited six businesses since my return," Gelsinger commented, referring to his arrival from VMware to Intel in early 2021. There may be more to come. ®

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