Intel Faces a Long Climb Back from the Bottom

Downtrodden stock jumps on better-than-feared results, but lots of work lies ahead.

By guest author Dan Gallagher from the Wall Street Journal.

April 28, 2023

Intel has ruled the market for central processing units since the 1980s. But rival AMD overtook Intel in market value last year, thanks in part to an expensive bet on chip design. WSJ’s Asa Fitch explains the companies’ battle for the brains of your computer.

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Intel INTC 4.02%increase; green up pointing trianglehitting rock bottom isn’t a pretty sight, but it is still a welcome one.

The chip maker’s first-quarter results late Thursday took the “better than feared” concept to a new level. Revenue plunged 36 % year over year—the company’s worst quarterly drop since at least the early ’90s, which is as far back as data from S&P Global Market Intelligence goes. Its operating loss of nearly USD 1.5 billion was also a record over that time frame. In another first, Intel actually lost money in its data-centre segment—a business that generated operating margins of 50 % in the same quarter just three years prior.

Still, those results were better than Wall Street had anticipated, and overall revenue was even a bit better than Intel’s brutal forecast three months ago. Thus, Intel’s stock price jumped nearly 5 % Friday morning, April 28, 2023. It was overdue for some upside. Intel’s market value has been decimated over the past two years as the company has embarked on an expensive and risky turnaround plan to regain its manufacturing edge and build up a new business making chips designed by others, called a foundry. Before Thursday’s results, Intel’s stock price had shed one-third of its value over the previous 12 months—the worst performance of any tech company with a market value exceeding USD 100 billion, according to FactSet.

To be sure, Intel still has a deep hole to climb out of. To get its manufacturing process caught up with market leader Taiwan Semiconductor Manufacturing, or TSMC, Intel is pursuing a plan to advance through five so-called manufacturing nodes in four years. The company’s latest node, which it calls Intel 4, is on track to start volume production in the second half of this year, and is Intel’s first using the extreme ultraviolet, or EUV, lithography technology vital for producing the most advanced semiconductors. Pierre Ferragu of New Street Research calls this “a major milestone” that will improve Intel’s competitiveness.

But Intel 4 is still based on 7-nanometre technology, while TSMC is already shipping more advanced 5-nanometer chips at high volume. The chip giant even previewed its 3-nanometer technology earlier this week, at a trade show less than 2 miles from Intel’s Silicon Valley headquarters.

Intel’s deep roots in advanced chip making make such a gambit plausible—if a long shot. But the company can’t afford more stumbles on that path. And it has to fund that effort while also coping with a sharp downturn in demand for both PC and data-centre processors, which combined account for more than 80 % of its revenue. PCs at least may start getting a little better. Intel Chief Executive Pat Gelsinger said on Thursday’s analyst call that the bloated inventory in the PC market that has depressed chip sales there “is tracking to be at a healthy level by the end of Q2.”

MarketsHeard on the Street Intel Faces a Long Climb Back from the Bottom Downtrodden stock jumps on better-than-feared results, but lots of work lies ahead By Dan Gallagher April 28, 2023 11:59 am ET Pat Gelsinger is CEO of Intel, whose market value has been decimated over the past two years. Photo: Tom Williams/Zuma Press

The data-centre business may remain a tough market for Intel this year. Cloud giants like Microsoft, Amazon and Google are now focusing their capital spending on building up generative artificial-intelligence capabilities, which require more of the graphics processors made by Nvidia rather than the CPU processors that Intel specializes in. And even success in its rapid catch-up effort may create new challenges; Ed Snyder of Charter Equity noted that “releasing five nodes in four years will probably be too fast for customers to absorb the new products anywhere close to the rate of past upgrades.” For Intel at least, that would finally be a high-quality problem to have.