People don’t buy many PCs – and Intel feels the burn of billions

The COVID-19 pandemic has made PCs more important than ever, and sales have exploded two years in a row. But now the good times for computers and chip makers seem to be fading fast. The slump in Chromebook sales in the last quarter of the year made way for an even bigger drop that hit Windows manufacturers as well, and today, chip maker Intel revealed a 25 percent drop in consumer chip sales. It says a “near-term cyclical slowdown” is causing the overall PC market to shrink by about 10 per cent this year.

“Some of our biggest 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 was already down 12.6 percent compared to last year. Today, Apple reported a nearly 10 percent drop in its Mac sales as well Suggest Tim Cook He may have simply sold out of his Mac stock.

Back to Intel: Overall, the company reported a 22% drop in revenue to $15.3 billion for the second quarter of 2022, and its earnings actually turned negative — it lost half a billion dollars this quarter. This represents a 109 percent drop in profit from $5.1 billion 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 business is down 16 percent in revenue and 90 percent in operating income, too.

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

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

It is also seeing a loss of another $155 million to ramp up its plumbing services business, which sees the company sign deals to produce chips for other companies including Qualcomm and MediaTek. Making chips for other companies is something the company has historically not done before but is part of its new plan under Gelsinger.

Aside from the ragged profits, Intel scored a big win over that new strategy today: Congress just passed the CHIPS Act that will approve $52 billion in funding for companies to manufacture chips in the United States, and it’s believed that much of that money will go to Intel. It seems highly unlikely that the funding will actually fix the chip shortage or make the US a chipmaker powerhouse like its rivals in Asia, but Intel promised (and temporarily withheld) the factories and jobs based on that money.

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

Intel expects lower returns next quarter as well, but CFO David Zinsner notes that things could improve from there: “We expect the second and third quarters to be the company’s financial bottom.”

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