“A penny saved is a penny earned” appears to be Intel’s new motto – as it struggles to grow revenue due to an overreliance on PC sales – it is instead looking at cutting spending by as much as $10 billion a year through 2025.
Intel reported that revenue fell 20% to $15.3 billion in the third quarter ended October 1, and profits fell a staggering 85% to $1 billion. Last quarter, Intel’s revenue fell 22%.
The chipmaker lowered its annual revenue forecast for the second time this year to $63 billion, down from the $65 billion to $68 billion expected at the end of last quarter and below its original revenue forecast of $76 billion.
In response to extremely low profits, Intel said it aims to reduce expenses by $3 billion in 2023, and by the end of 2025, it aims to save $8 billion to $10 billion annually.
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“This will help improve margins and earnings per share and boost its share price,” said Pareekh Jain, CEO, EIIRTrend & Pareekh Consulting. “However, their over-reliance on the PC and server segments is their main weakness. It has no footprint in the mobile segment. It lags behind Nvidia in GPUs and AI chips and behind AMD in server chips.”
According to Bloomberg, the cost cutting could also affect thousands of jobs, affecting about 20% of Intel’s employees. Intel CEO Pat Gelsinger confirmed on a conference call with analysts Thursday that layoffs were indeed coming, but did not disclose any specific details.
“The inclusivity of our efforts will be steps to optimize our workforce. These are difficult decisions affecting our loyal Intel family,” Gelsinger said on Thursday’s conference call, according to a transcript from Seeking Alpha.
The company’s client computing segment, which includes PC chips, generated $8.12 billion in revenue, down 17%. After nearly two years of pandemic-supported rapid growth, PC shipments fell nearly 20% in the third quarter, according to Gartner.
Declining demand for PCs has affected not only Intel but its competitors as well. However, Intel is more susceptible to fluctuations in demand in the PC space than any of its rivals. For example, less than a fifth of AMD’s $5.6 billion in quarterly revenue comes from its customer segment — which includes revenue from sales of PC and laptop chips — while Intel’s customer computing group accounts for more than half of its total revenue.
But even in areas where rivals are growing rapidly — data centers and advanced chips — Intel is lagging. Intel’s data center and artificial intelligence segment fell 27% in the quarter to $4.21 billion, while AMD’s data center revenue grew 45% in the same quarter. In fact, for the embedded segment, AMD reported revenue growth of 1,549%. Nvidia, on the other hand, reported a 61% increase in data center revenue in its last reported quarterly results.
“In the data center, we’re growing slower than the market,” Gelsinger admits. “Data center TAMs are performing better, although enterprises in China continue to show signs of weakness, as do some (but not all) cloud customers.”
While Intel posted sharp declines in its PC and data center segments, the picture seemed less dramatic in its smaller business segments that were catching up quickly. For example, revenue from the network and edge business, which features network products, was $2.27 billion, a year-over-year increase of 14%.
Mobileye, Intel’s self-driving technology company, launched its initial public offering on Wednesday and reported a 38% year-over-year revenue increase to $450 million. Intel continued to control the unit after the IPO.
Likewise, Intel’s Accelerated Computing Systems and Graphics segment grew 8% in the quarter to $185 million.
“A good part of the third quarter results is that its R&D spending increased compared to last year’s third quarter. They shouldn’t be cutting back on R&D spending because it’s critical to develop and launch new products in new areas. That may be needed in either areas to cut costs to get the company right-sized,” said Jain. “With these results, Intel will face the challenge of arranging funds for new foundries and other investments. They roped in Brookfield Asset Management to take a stake in their foundry in Arizona. They will also have to rely on similar financing models for other investments. OEM investment.”
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