Intel enters a “dormant period”

This year, the development situation of various industries is not very good, and everyone has entered a cold winter. The latest data released by Strategy Analytics shows that global mobile phone shipments in the third quarter fell by 9% year-on-year to only 297 million units. Among them, in addition to Apple’s small growth of 6.4%, Samsung, Xiaomi, OPPO, vivo and other companies all experienced varying degrees of decline, with a maximum decline of 20%. The situation of the PC market is even more bleak. According to IDC statistics, the total global shipments in the third quarter were 74.2 million units, a year-on-year decrease of 15%. Among them, Lenovo’s sales fell by 16.1% year-on-year, while HP and Dell both fell by more than 20%. Only Apple had the last laugh, with a 40.2% growth relying on the strength of the M-series chips.

(Image source: IDC)

The slump in the PC market is mainly caused by the global economic downturn and lower consumer demand. Among them, in addition to major PC manufacturers, there are two processor suppliers Intel and AMD who are more seriously affected. Computers cannot be sold, and the processor market will naturally not be better. Recently, Intel released its financial report for the third quarter of 2022. Its total revenue for the quarter was $15.338 billion, down 20% from $19.192 billion in the same period last year; net profit plummeted 85% year-on-year to only $1.019 billion. Dollar.


In the face of such dismal performance, Intel timely lowered its revenue forecast for the fourth quarter, and also announced a plan to cut costs and improve efficiency, cutting expenses by $3 billion in 2023 and cutting costs by up to $10 billion in 2025. . Intel CEO Pat Kissinger said directly on the conference call that this move will affect the number of employees. First, the price of products rose first, and now they are preparing for large-scale layoffs. Even giants like Intel cannot escape such an outcome. In such an unfriendly environment, how should Intel seek growth points?


The revenue of the pillar business has plummeted, and other businesses are also burning money like crazy


The biggest reason for Intel’s sharp decline in revenue and profit this quarter is that the development of its two pillars has been hindered. As mentioned above, global PC shipments have fallen sharply, and processors cannot be sold. This has caused Intel’s customer computing business revenue to drop by 17% year-on-year, from $9.788 billion last year to $8.124 billion; operating profit has dropped from $3.592 billion to $1.655 billion, more than half.

(Source: Intel official)

The desktop business remained relatively stable, with revenue of $3.222 billion in the quarter, a slight increase from $3.119 billion in the same period last year. The notebook business was bleak, down from $5.944 billion in the same period last year to $4.41 billion, down 25.8%. At the same time, other related businesses performed less well, with revenue of $493 million compared to $725 million in the same period last year.


Intel’s second-largest sector is the data center and AI business, and revenue this quarter also plummeted 27% to $4.209 billion; operating profit can be said to be appalling, from 2.293 billion yuan in the same period last year to $17 million. This resulted in a deficit of $2.276 billion for Intel. The decline in demand in the PC market and the server market led to a decline in revenue from Intel’s two pillars. The increase in chip production costs will directly lead to a decrease in product profit margins, and eventually both revenue and profit will drop. Even if Intel has been rescued by product price increases, it does not seem to have brought much help, and obviously cannot offset the impact of rising production costs.

(Source: Intel official)

However, Intel’s other businesses have achieved considerable growth, such as network and edge computing business revenue of 2.266 billion US dollars, an increase of 16% year-on-year; accelerated computing systems and graphics business revenue increased by 8% to 171 million US dollars; Autonomous driving division Revenue increased by 38% to 450 million yuan and so on. Although these small sections performed well, their scale was too small to make up for the losses in the main business. Moreover, Mobileye’s listing valuation is far less than Intel’s expectations, only 16.7 billion US dollars, far from the expected 50 billion US dollars, unable to bring more financial support to Intel.


It is actually acceptable that major businesses do not make money. The biggest problem Intel currently encounters is that there are still many businesses that are burning money like crazy. The first is Intel’s previously announced “IDM 2.0” strategy. In order to compete with Samsung and TSMC for chip foundry business, Intel is actively building fabs and constantly throwing out expansion plans to increase chip production capacity to attract more customers. . At the end of last year, Intel invested nearly 7 billion US dollars to expand the production capacity of chip packaging factories in Malaysia. Earlier this year, Intel spent another $1 billion to build a new wafer foundry in Ohio, which is planned to be completed within 10 years, which is also a long-term and continuous investment.


Not only that, in order to improve the competitiveness of the chip foundry business in the industry, Intel has to increase investment to impact more advanced process technology, in order to catch up with TSMC as soon as possible. At the same time, Intel may also need to grab customers and equipment with its peers, which is also a huge investment. If Intel can’t quickly gain a firm foothold in the foundry market, it is difficult to see the benefits of these investments in the short term. Fortunately, Intel is currently testing chips for 35 customers, and the foundry business can be expected in the future.

(Source: Intel official)

In addition, Intel is also focusing on the autonomous driving business, which will inevitably be one of the projects that burn money in the future. Mobileye’s listing valuation is far lower than expected. Intel’s way of obtaining more funds through listing will not work. It can only promote the development of autonomous driving business through other businesses. However, the CEO of Mobileye said that there are currently more than 800 models and over 125 million vehicles equipped with Mobileye’s technology. With the rapid development of the smart car industry, this business has considerable growth potential.


But looking at the present, Intel’s situation is indeed difficult. If the PC market continues to slump, its revenue and profits will inevitably be hit again. Therefore, Intel can only start laying off employees. Foreign media reported that sales and marketing departments may lay off 20% of the staff, and the number of layoffs will reach thousands. The specific details will be announced on November 1. Layoffs can barely alleviate the current crisis, but it is not conducive to long-term development. To regain the growth curve, Intel may need to find other solutions.


Survive the past may be a better future


Of course, Intel’s situation is not pessimistic, and there are still many opportunities for growth. As long as it can survive this cold winter, it may soon return strongly and continue to consolidate its position as the hegemon of the semiconductor industry.


As mentioned above, although Intel’s foundry business and autonomous driving business are very expensive, they already have a certain revenue capacity, and the two businesses also have a high influence in the industry, and soon It can help Intel make money and make up for losses in other businesses. Especially in the foundry business, the current advanced manufacturing process is basically monopolized by TSMC and Samsung. Chip manufacturers such as Qualcomm, AMD, and MediaTek do not have too many choices, nor can they control the bargaining power. If Intel’s technology can meet the requirements of chip manufacturers, it can provide new options for the industry, and it is expected to attract a large number of customers. As the production scale increases, the cost is expected to be reduced, which is also of great help to the production capacity and cost control of its own processors.

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Secondly, although Intel’s development in the PC market has been hindered, it is undeniable that it is still the leader of the current market, and its position cannot be shaken. Some time ago, the newly launched 13th-generation Core products showed strong performance to consumers, which is more competitive than AMD’s same-generation products. If the mobile version of the product can also continue this excellent performance, it is very likely to stimulate users to upgrade products, thereby promoting the growth of notebook market sales. At the same time, this can also help Intel regain some of the share previously robbed by AMD and continue to expand its share of the PC market.


With the release of graphics cards such as Intel A380, it also indicates that Intel has officially entered the discrete graphics card market and competes head-to-head with NVIDIA and AMD. The performance of the A380 may not reach the height expected by everyone, but it is only an entry-level product after all, and high-end models such as the A770 will appear one after another. The performance is still worth looking forward to. Intel’s entry into the independent display market can not only provide consumers with new choices and build a “three I” platform, but also help it open up new markets and lay the foundation for future growth.

(Source: Intel official)

The slump in the PC market has affected far more than Intel alone. The main businesses of AMD and Nvidia have also been damaged, and everyone has entered a low period. When the entire industry is going downhill, no one is spared, and Intel’s situation actually reflects the current state of the entire industry. Compared with other competitors, Intel’s opportunities are still much larger. As long as this wave of troughs is overcome, there is still a pretty bright future.