Intel (INTC) Adds Execution Issues And Market Share Losses To List Of Headwinds Hurting Performance
3:02 pm Friday, July 29th, 2022
Heading into Intel’s (INTC) lousy Q2 earnings report, many signs were pointing to a difficult quarter for the chip maker, including discouraging commentary from CFO David Zinsner in early June that the macroeconomic climate is weaker than expected. Those comments, which were made at a Bank of America conference, preceded a soft Q4 outlook from Micron (MU) on June 30 that was due to a sharp slowdown in the PC and laptop market. MU’s downside guidance didn’t necessarily come as a surprise, though, because consumer electronics retailer Best Buy (BBY) previously posted lackluster quarterly results that included an 8.0% decline in comps.
All of this evidence strongly indicated that INTC’s Client Computing Group (CCG) will report bleak results this quarter. That indeed was the case as CCG revenue plunged by 25% yr/yr to $7.7 bln. With CCG revenue up by a rather pedestrian 6% in the year-earlier quarter, INTC can’t fall on the excuse that it faced an unfavorable yr/yr comp. Instead, the steep downturn is tied to a combination of external and internal issues.
It’s well-understood that PC and laptop sales have stalled after experiencing a boom during the pandemic as the work-from-home transition unfolded. Relatedly, INTC now projects the PC total addressable market to contract by about 10% this year.
After contracting by 5.7 percentage points last quarter to 53.1%, gross margin fell off a cliff this quarter, plummeting by 15 percentage points yr/yr to 44.8%.
In addition to cost pressures related to its manufacturing expansion, the decline in higher ASP server chip sales also weighed heavily on margins.
The only thing investors can hang their hats on is the premise that this may be a “kitchen sink” quarter in which INTC aired out all of the bad news. Gelsinger tried to sell analysts on that idea during the earnings call, stating that new products and improved execution will turn the tide for the struggling company. However, based on the stock action, it’s apparent that investors are losing their patience with its turnaround efforts.
