Intel Focusing on Innovation, Growing Portfolio in Face of Declining Revenues, Fierce Competition

While the rest of the big tech companies are coping with a global economic downturn, chipmakers are adjusting to a slump that has affected almost every aspect of their business. Intel faces a number of rivals in addition to a battle to maintain its position as the largest chip maker in America by revenue.

With revenues down 32% to $14 billion in the year's last quarter, Intel recorded a $664 million loss overall. According to experts surveyed by FactSet, the result fell short of Wall Street expectations for a $278 million loss on $14.49 billion in sales.

While Intel CEO Patrick Gelsinger declined to give a revenue forecast for the year 2023 in the company’s earnings call for the most recent quarter, CFO Dave Zinsner stated that the Q1 revenue prediction for Intel was between $10.5 billion and $11.5 billion, far less than the consensus of $13.93 billion.

Regardless, Gelsinger remained upbeat about the future growth of the company, noting that the company aims to double down on innovation and on bettering its product portfolio:

“We intend to capitalize on this TAM [*total addressable market] through a strong pipeline of innovation and based on the growing strength of our product portfolio, customers are increasingly betting on Intel. We grew share in the second half of '22, and we expect that positive momentum to continue in '23. We remain clear-eyed on managing near-term weakness in PCs but we also see the enduring and increasing value PCs have in our daily lives.”

Despite acknowledging that the business may continue to decline, he stated that such a decline might only last for the first quarter.

“We expect macro weakness to persist at least through the first half of the year with the possibility of second-half improvements.”

Gelsinger also mentioned China as the area most impacted by negative earnings.

“While all segments have weakened, enterprise and rest of world, especially China, continues to be weaker than hyperscale.”

The CEO also attributed more of the earnings decline to operations in China.

“Our share in calendar year '22 was in line with our subdued expectations, and our revenue volatility was a function of TAM, especially given our outsized exposure to enterprise and China.”

The value of Intel's stock has declined as the chipmaker struggles with slow manufacturing issues, PC sales, and market share losses to rivals AMD, Nvidia, and Arm Ltd. In the quarter ended Dec. 31, 2022, revenue for Intel's data center and AI segment decreased by 33% to $4.3 billion, while sales of its PC chip segment plummeted by 36% to $6.6 billion in the last quarter.

Competitors like AMD and Nvidia have had their stocks drop over the past year as well, with AMD stock taking a 32% decline and Nvidia stock seeing a 13% drop. However, this is still far better than Intel’s stock which has suffered a 42% dive.

In the increasingly significant data center industry, where Intel has long been a leader, Arm-based CPUs have been gaining market share in PCs, and have grown to be a more formidable competitor. According to industry research firm Canalys, ARM-powered PCs will account for 30% of the PC market by 2026.

Given that more sales losses are anticipated, Intel may continue to lose market share in the PC industry, as the CEO's predictions painted a bleak picture.

“In the PC market, we saw a further deterioration as we ended calendar year '22. In Q3, we provided an estimate for the calendar year '23 PC consumption TAM of 270 million to 295 million units. Given the continued uncertainty and demand signals we see in Q1, we expect the lower end of that range is a more likely outcome.”

While the company anticipates a reduction in revenue for the first quarter of this year, CFO Zinsner said Intel will implement a $3 billion spending reduction as a cost-cutting measure.

“While we're progressing toward a $3 billion spending reduction with significant austerity across the company, given the fixed cost nature of our business, we expect the sequential revenue decline will result in negative operating margin in the first quarter.”

Other cost-cutting measures, the CEO said, included possible downsizing, which the company is already doing, and a better focus on Intel’s key business units.

“We are making tough decisions to rightsize the organization and we further sharpened our business focus within our BUs by rationalizing product road maps and investments.”

According to a report by Reuters, the market value of Intel fell by roughly $8 billion on Friday, and experts deem this to be a historic collapse.