Intel revenues fall 36 per cent while net income plummets 134 per cent in Q1

Despite the nosedive CEO Pat Gelsinger says the chipmaker expects a ‘modest recover’ in the second half of the year as the PC market improves and its datacentre prospects brighten

While the downward spiral of Intel's financials continued in the first quarter, the chipmaker said it has started to turn the corner as the PC market shows signs of recovery and the company's datacentre prospects brighten with a line-up of three new chips in the next year and a half.

The California-based company reported on Thursday that its Q1 revenue declined 36 per cent year over year to $11.6bn in sales while its net income plummeted by 134 per cent to a loss of $2.8bn from a profit of $8.1bn during the same period last year.

But with that precipitous drop in revenue and profitability, Intel offered some silver linings and said it remained on track to enact CEO Pat Gelsinger's comeback plan to leapfrog the company's Asian foundry rivals and provide the most competitive products in the market by 2025.

The good news for Intel: It exceeded Wall Street's expectations for revenue by $570m and for earnings per share by ten cents with a loss of four cents per share, which Gelsinger said represented the company's "steady progress with our transformation."

The $11.5bn to $12.5bn revenue range offered for its second-quarter guidance fell mostly within the analyst consensus. And Gelsinger said he expects a "modest recovery" in the second half of 2023.

"We delivered solid first-quarter results in both the top and bottom line. Upside was driven by better-than-expected revenue and very disciplined expense management across our organisation," Gelsinger said on the company's earnings call.

Investors took some time to digest Intel's earnings, first sending its stock price up, then down and then up by more than four per cent in after-hours trading Thursday.

Intel sees recovery in PC first as core businesses struggle

Gelsinger said while the PC market is improving, the worse has yet to come for the server and networking markets, all of which figured into the company's Q2 guidance.

"We are seeing increasing stability in the PC market with inventory corrections, largely proceeding as we had expected. However, the server and networking markets have yet to reach their bottoms as cloud and enterprise remain weak," he said.

For the first quarter, Intel reported revenue declines of 30 per cent or more across its three largest businesses: the Client Computing Group, the Data Center and AI Group, and the Network and Edge Group. Even the company's nascent contract manufacturing business, Intel Foundry Services, saw revenue sink by 24 per cent year over year to $118m during the period.

Only Mobileye, a publicly traded company majority owned by Intel, saw revenue increase, by 16 per cent, to $458m in the first quarter.

The Client Computing Group, which houses Intel's CPUs, GPUs and other components for PCs, saw revenue shrink 38 per cent to $5.8bn. The company blamed this on lower demand for PCs as well as OEMs focusing on clearing out existing inventory of Intel components.

At the same time, Intel gained share in the overall PC market in the first quarter, according to Gelsinger, and he expects the PC business to improve later this year as the company ramps production of its next-generation CPU, code-named Meteor Lake, for launch in the second half of 2023.

"As we anticipated on our Q4 earnings call, the PC market depleted a significant amount of inventory in Q1 and is tracking to be at a healthy level by the end of Q2. Importantly, the PC install base is larger and usage remains well above pre-pandemic levels," Gelsinger said.

First quarter a ‘turning point' for Intel's datacentre Prospects

The Data Center and AI Group, which includes CPUs, GPUs and other chips for servers, fell 39 per cent to $3.7bn in sales. The company said this decrease was the result of lower demand for datacentres and "competitive pressure."

Gelsinger said Intel's fourth-generation Xeon Scalable CPU, which launched in January, is the "one of the highest quality datacentre GPUs Intel has ever delivered" and is on track to reach 1 million units shipped by the middle of the year, having already received "excellent customer feedback."

He added that Intel's datacentre prospects are further improving with future generations of Xeon Scalable, with Emerald Rapids sampling with customers now and on track to launch in the fourth quarter, Sierra Forest set to ship for hyperscale and cloud customers in the first half of 2024 and Granite Rapids arriving for a broader set of customers "shortly thereafter."

"The combination of our roadmap strengthening as we highlighted in our webinar, better than expected Q1 market share results and great execution on the Xeon Gen 4 ramp, Q1 was a turning point as the first quarter of an improving data center position since I became CEO," Gelsinger said.

The Network and Edge Group, which includes CPUs and other kinds of chips for edge and networking use cases, reported a 30 per cent reduction to $1.5bn in revenue. The company said soft demand combined with high inventories of chips held by customers were the primary factors.

Gelsinger said he anticipates 2023 Network and Edge revenue to decline from the previous year, primarily due to customers continuing to work through existing chip inventories.

"In our broad-based markets like industrial, auto and infrastructure, demand trends are relatively stronger, although, as anticipated, the [Network and Edge Group] did see a Q1 inventory correction that we expect will continue for the next couple of quarters," he said.