According to official statistics, Intel Corporation’s quarterly revenue fell by almost a third last quarter. Revenue for full-year 2022 fell 20% to $63.1 billion. This year will also be difficult, as Intel management expects, but at the same time it is trying to find reasons for optimism, promising, for example, the size of to keep dividends at competitive levels. Shares of the company were down around 10% after the close.
CEO Patrick Gelsinger began his keynote with the following words: “Despite economic and market challenges, in the fourth quarter we made progress on our strategic transformation, including advancing a forward plan to launch products and improving our operational structure and processes to increase efficiencies, while remaining within the lower bound of our revenue guidance. “.
CFO David Zinsner added: “During the fourth quarter, we took steps to streamline our organization and rationalize our investments, prioritizing where we can maximize long-term value.”. The company continues to expect to achieve $3 billion in cost savings this year and grow savings to $8 or $10 billion by the end of 2025.
In the fourth quarter, Intel’s revenue fell 32% year over year to $14 billion, profit margins fell from 53.6% to 39.2%, and GAAP net losses hit $700 million, even though the company was in the Was able to generate net income -GAAP basis of $400 million.According to both calculation options, the company’s profits decreased by about half.
Note that Intel’s quarterly revenue added to the rate of decline as it fell 7% to $18.4 billion in the first quarter of last year, down 22% to $15.3 billion in the second quarter and in the third The quarter was down 20% to $15.3 billion (year-over-year), and by the fourth, as noted above, the decline had reached 32%. As a result, Intel’s revenue has declined year-over-year over the past year. The pattern is similar for other companies due to comparison to the peak growth phase inherent in the pandemic, but is particularly pronounced for Intel.
Revenue from Intel’s client division fell 36% to $6.6 billion in the fourth quarter as weakness in demand was most evident in the PC segment. In the fourth quarter, customer stocks remained at a higher level than originally expected, Intel management said. It will take at least the current six months to exhaust them. That didn’t stop the company from raising the average selling price of client processors by 11% to a record level in the fourth quarter, as core products have a fairly strong market position at the top end. Customers’ operating profit didn’t top $0.7 billion in the fourth quarter, after a one-shot decline of 82% year over year. At the end of all of 2022, Intel revenue in one customer segment fell 23% to $31.7 billion.
Last quarter, Intel’s desktop segment revenue fell 33% to $2.5 billion and mobile revenue fell 37% to $3.7 billion. From this share it is clear that the company gets more than half of its revenue in the client segment from the segment sale of mobile components.
In general, Intel does not hide its confidence that sooner or later the established capacity of the PC market will be fixed at the level of about 300 million units per year, but will decrease to 270 or 295 million units this year. In the second half of last year, according to the Intel boss, the company strengthened its market position, and this year the trend is expected to continue.
Patrick Gelsinger did not want to predict when the range of Intel components in the PC segment will grow again: “Throughout calendar year 2022, our deliveries to customers were approximately 10% below consumption (retail), in the fourth quarter the share of under-deliveries has increased significantly and will increase again in the first quarter, demonstrating the strongest utilization of the accumulated inventory in 2022 history our observations. While we know the momentum will reverse, it is difficult to predict when that will happen.”.
The presentation accompanying the quarterly report noted that demand for PCs in the consumer and education sectors fell the most, as manufacturers have not yet had time to fully use up the accumulated inventories. According to company management forecasts, Intel’s customers will clear their component inventories significantly faster in the first quarter than in the previous five quarters. The main hopes for the start of the market recovery, albeit tentative, for Intel are tied to the second half of this year, guided by both comments from major customers and forecasts from third-party sources.
In the data center and artificial intelligence systems segment, Intel gained a third less than a year earlier – just $4.3 billion in the fourth quarter. As noted in the presentation, both the reduction in market capacity and the growing one had an impact Competition against it (mainly from AMD). Operating income in the server business fell 84% to $0.4 billion as costs rose and revenue fell due to the introduction of a new generation of processors, while maintaining the need to invest in the development of future products on the to keep it at the right level. Intel’s server direction revenue fell 15% at the end of the year to $19.2 billion.
Other segments of Intel’s activity in the company presentation are summarized in one slide, showing a modest 1% increase in revenue for AXG’s graphics division to $247 million while reducing its operating losses from $641 million to $441 million. Significantly, the increase in sales in this area can be explained by positive sales dynamics for components for supercomputer systems, but we are complaining about a decline in the client area. From now on, Intel’s discrete graphics business will be integrated into the Client Products (CCG) and Server Solutions (DCAI) divisions. This change in organizational structure, management believes, better suits the Company’s interests as it moves from the discrete graphics launch phase to the market expansion phase. AXG division revenue for full year 2022 increased 35% to $837 million.
This organizational change is not limited. While Intel will continue to roll out existing telecom solutions into its product lineup, investments in the development of new products for the NEX (Network and Edge) division will be phased out, resulting in cost savings. And this is despite the fact that the NEX division gained $2.1 billion in the last quarter, which shows a decrease in this indicator by only 1%, and year-end sales increased by 11% to $8.9 billion -dollar has gone up. Patrick Gelsinger felt it necessary to add that since taking over as CEO of Intel, the company has scaled back operations across seven business units, saving them more than $1.5 billion overall.
Intel is very proud of the strong sales performance of Mobileye, which recently went public. Revenue grew 59% year over year to $565 million as interest in vision and autopilot components continues to grow. Operating profit immediately jumped 71% to $210 million as it outpaced revenue growth. Incidentally, according to its full-year results, Mobileye’s revenue grew 35% to a record $1.9 billion.
IFS’ chip manufacturing division increased revenue 30% to $319 million in the fourth quarter, mainly due to higher orders from automotive component manufacturers. At the same time, rising costs forced the company to incur $31 million in operating losses in this area.
Intel’s total revenue fell 16% to $63.1 billion at the end of 2022, the return did not exceed 42.6% under GAAP and 47.3% under non-GAAP, net income fell immediately by 60% to $8 billion using the first method, and by 65% to $7.6 billion using the second method.
Intel management categorically refused to provide a sales forecast for the whole of 2023, only several times expressing the opinion that the situation in the main markets of presence will begin to improve in the second half of the year. The forecast for the first quarter of this year implies a continued decline: the company expects revenues of $10.5 billion to $11.5 billion, a decline in profit margin to 34.1 or 39% (depending on the calculation method), as well as with further losses per share recalculated in the range of $0.15 to $0.80. By the way, the expected decline in the profit margin by up to 4 percentage points at Intel is explained by the low utilization of production lines.
At the same time, starting in January this year, the company will set a longer depreciation period for some types of production equipment – eight years instead of the usual five. This decision is explained not only by the banal desire to reduce the cost of depreciation this year, but also by the transition to the IDM 2.0 business model, more active participation in the contract service market, as well as the use of a different chip layout. In fact, technological equipment will now pay for itself longer than before. The life cycle of many technical processes will be extended because they are now in demand not only by Intel itself, but also by its customers.
In short, in 2023 alone, the new approach will reduce depreciation expenses by $4.2 billion, increase net income by $2.6 billion, reduce R&D expenses by $400 million and reduce book value Year-end inventory reductions by $1.2 billion In the first quarter of this year alone, the increase in equipment depreciation will deliver $350-$550 million in benefits.