Intel Loses Historic $8bn in Market Value with Disappointing Q4 2022 Result

Intel took a massive hit on Friday following the evaporation of about $8 billion from the chipmaker’s market value, indicating 32% year-over-year revenue drop that has triggered fear of a slump in the personal computer market.

The company’s fourth-quarter earnings fell short of analysts’ expectations, deepening its troubles and paving way for its rivals to exert further dominance in the much contested market.

Intel reported a net loss of $664 million, compared to a profit of $4.62 billion in the same quarter last year. The company recorded a total of $63.1 billion 2022, a 20% decline Year-over-Year.

“Clearly the financials aren’t what we hoped for, but we’re also pleased with the execution process we made,” CEO Pat Gelsinger said during Thursday’s earnings call.

“Despite the economic and market headwinds, we continued to make good progress on our strategic transformation in Q4, including advancing our product roadmap and improving our operational structure and processes to drive efficiencies while delivering at the low-end of our guided range.”

Gelsinger, who was hired early 2021 to turn around Intel’s misfortune, now has to double efforts to put the once market leader on winning ways. He said that Intel would continue to overcome short-term issues while pursuing long-term goals in 2023.

Intel’s revenue plunge, which resulted from declines in its two main business segments in the fourth quarter, came as a shock to Wall Street.

“No words can portray or explain the historic collapse of Intel,” said Rosenblatt Securities’ Hans Mosesmann.

The worst of the company’s revenue drop came from its Client Computing Group (CCG), comprising its desktop and laptop CPUs, which fell 36% to $6.6 billion.

“Demand fell mostly in the consumer and education markets and customers reduced their inventories,” Intel said.

Computing quoted Gartner saying that the PC market shrank more sharply than in any previous quarter since it started monitoring the sector in the 1990s.

But other areas of Intel’s business also recorded significant losses. The $4.3 billion in sales in Intel’s Data Center and AI sector (DCAI), which includes server chips, memory, and field-programmable gate arrays, was down 33% due to increased competition and a shrinking market, per Computing.

Computing reported that Intel’s network and edge (NEX) business area, which includes networking solutions, also showed signs of weakening demand. Revenue for the division fell 1% YoY to $2.1 billion, marking a dramatic reversal from the double-digit growth the division had previously posted. Despite this, the division grew 11% during the fiscal year 2022, it said.

Intel is facing heated rivalry in the chip market led by AMD, which in the past months has recorded significant growth under the leadership of Lisa Su, its trailblazing CEO who has been snatching businesses from Intel. Another company squaring up to Intel is Nvidia, the graphics chipmaker that is now expanding into central processors, augmenting its market growth as Intel falters.

AMD has used contract chipmakers such as Taiwan-based TSMC to make chips that outpace Intel’s technology, putting AMD ahead in revenue growth.

“AMD’s Genoa and Bergamo (data center) chips have a strong price-performance advantage compared to Intel’s Sapphire Rapids processors, which should drive further AMD share gains,” said Matt Wegner, analyst at YipitData.

While Intel shares closed 6.4% lower, AMD and Nvidia ended the session up 0.3% and 2.8%, respectively.

But despite the losses, Intel remains dominant in the market. The company’s smaller groups, like Mobileye and Intel Foundry Services (IFS), grew 59% and 30%, respectively, during the fourth quarter.

Intel continues to dominate the markets for PC and server processor chips, with a market share of more than 70%, according to IDC.

The chipmaker’s ordeal was compounded by the decision of biggest customers, Apple and Amazon, to focus on creating their own chips.

Intel generated $7.7 billion in cash from operations in the fourth quarter and paid dividends of $1.5 billion. The company plans to cut $3 billion in costs this year. But analysts said the company should consider cutting its dividend as capital expenditure is estimated to be around $20 billion in 2023.

Intel said it is poised to tackle the shortfalls in 2023, in hope to stabilize and accelerate growth, returning Intel to its uncontested market dominant position.

“In the fourth quarter, we took steps to right-size the organization and rationalize our investments, prioritizing the areas where we can deliver the highest value for the long term,” David Zinsner, Intel CFO, noted.

“These actions underpin our cost-reduction targets of $3 billion in 2023, and set the stage to achieve $8 billion to $10 billion by the end of 2025,” he added.

Gelsinger has been expanding contract manufacturing, building new factories in the US and Europe, as part of efforts to revamp Intel.

But analysts doubt the measures taken by Gelsinger will lift the company out of its predicament in the short term. Reuters quoted analysts saying that the current situation puts Intel at a disadvantage, even when the data center market, which is expected in the second half of 2022, bottoms out, the company would have lost even more share by then.

“It is now clear why Intel needs to cut so much cost as the company’s original plans prove to be fantasy,” brokerage Bernstein said.

“The magnitude of the deterioration is stunning, and brings potential concern to the company’s cash position over time.”