It's been a terrible year for chip and semiconductor makers.
And things are not about to get better according to Intel (INTC).
The sector is plagued by a mountain of problems. Demand for tech products is weakening as the economic slowdown deepens and uncertainty about an upcoming recession intensifies.
But semiconductors are in almost everything: from telephones to computers to cars to data centers. The fear of recession raises fears that the customers of the data center are the companies that will be obliged to reduce their expenses. Investors are also concerned that consumers will choose to postpone purchases of computers, phones and other gadgets, which in turn will cause manufacturers of these products to postpone or cancel orders for parts and components.
PC Is a Nightmare
The imbalance between demand and supply therefore affects chip manufacturers who find themselves with large inventories and are forced to lower their prices.
To this must be added the difficulties of sectors such as cryptocurrencies, gaming and PCs, large consumers of chips.
Worldwide PC shipments totaled 68 million units in the third quarter of 2022, a 19.5% decrease from the third quarter of 2021, according to research firm Gartner. This is the steepest market decline since Gartner began tracking the PC market in the mid-1990s, Gartner said.
"This quarter’s results could mark a historic slowdown for the PC market,” said Mikako Kitagawa, Director Analyst at Gartner. “While supply chain disruptions have finally eased, high inventory has now become a major issue given weak PC demand in both the consumer and business markets."
As if that weren't enough, the tensions between the United States and China are directly impacting semiconductor manufacturers who find themselves in the midst of the two economic powers' desire to dominate technology. The Biden administration recently issued new directives aimed at drying up Beijing's supply of microchips used in advanced computing and military applications.
Intel has just published disappointing third-quarter earnings. Net profit was $1.02 billion, down 85% year-on-year, while quarterly revenue fell 20% to $15.34 billion year-on-year, the company said in a press release.
The Cloud Computing division, which includes PC chips generated $8.12 billion in revenue, down 17%. Datacenter and AI segment, including server chips, memory and field-programmable gate arrays, recorded $4.21 billion in revenue, down 27%.
$10 Billion in Cost Reductions
The fall will extend to the fourth quarter since Intel has once again lowered its annual forecasts. The company now anticipates 2022 revenue of between $63 billion and $64 billion, up from $65 billion to $68 billion previously. Analysts expected $65.26 billion. Intel's initial forecast was $76 billion.
"Despite the worsening economic conditions, we delivered solid results and made significant progress with our product and process execution during the quarter,” said Pat Gelsinger, Intel CEO. “To position ourselves for this business cycle, we are aggressively addressing costs and driving efficiencies across the business.”
Indeed, Intel relies on the austerity cure that the company has just hardened. The company is focused on driving $3 billion in cost reductions in 2023, growing to $8 billion to $10 billion in annualized cost reductions and efficiency gains by the end of 2025.
Intel hasn't said how many jobs will be cut by its austerity package.
In early October Bloomberg News reported that Intel planned to cut thousands of jobs, as softening demand, supply chain disruption and run-away inflation continue to hammer PC demand.
Intel shares, which have fallen nearly 48% since January, jumped more than 6% after hours as investors seemed to appreciate the group's efforts to drastically cut costs.
