Components & Peripherals News
Intel’s Earnings ‘Collapse’ And Its Comeback Plan: 7 Things To Know
The semiconductor giant’s latest earnings report has investors concerned that Intel has a steeper hill to climb to return to growth and higher profitability as part of CEO Pat Gelsinger’s comeback plan. CRN rounds up seven important things to know about Intel’s fourth-quarter 2022 earnings report and how it plans to recover.
Why Intel’s Margins Are Lower Than Expected
For a long time, Intel was able to maintain a gross margin of around 60 percent before it began to plummet well below that level in 2020, which has become a major source of concern for investors.
Shareholders were already displeased last year when Intel projected that its gross margin would dip to 51 percent to 53 percent in 2023 and 2024—due to increased investments in advanced manufacturing nodes—before expecting it go back up to 54 percent to 58 percent in 2025 and 2026. Now with Intel’s gross margin going below 50 percent last year and potentially going under 40 percent in the first half of 2023, investors are more concerned than ever about Intel’s path back to higher profitability.
The biggest factor impacting Intel’s gross margin right now is the company’s lower revenue.
“So, obviously, revenue is the most significant impact to gross margin. We obviously did not expect to be down at these levels,” David Zinsner, Intel’s CFO, said on the earnings call.
Another factor impacting gross margin is the load of Intel’s chip manufacturing plants. Because demand is lower now, the company’s fabs aren’t running at capacity, which means they are less profitable due to the fixed costs of operating the factories.
“But again, as business conditions adjust, we will start loading the fab at a higher rate, and that will improve gross margins,” Zinsner said of Intel’s hope for things to improve later this year.
What’s also hurting Intel’s margins are the higher costs associated with the company’s advanced manufacturing nodes such as Intel 7 and next-generation products.
For the Client Computing Group, Intel cited an increased mix of products made with the Intel 7 node, such as Alder Lake and Raptor Lake, as one reason for the division’s operating income plummeting by 82 percent year-over-year to $700 million in the fourth quarter of 2022. The company also said investments in future products and manufacturing nodes dragged down operating income.
Similar factors led to an 84 percent year-over-year drop in operating income to $400 million in the fourth quarter for Intel’s Datacenter and AI Group. These factors included investments in future products and processes, higher unit costs and the costs ramping up production for new chips.
An increased investment in future products and processes was a significant factor too for the Network and Edge Group, whose operating income dropped 84 percent year-over-year to $58 million.