Intel announced second quarter 2022 earnings on the same day that Congress passed the CHIPS Act, of which Intel is seen to be a huge beneficiary, so it should have been a great day at Intel, but woeful quarterly numbers ruined the celebration.
After delivering the downbeat earnings news, which included revenue for the quarter 15% below original guidance, Intel CEO Pat Gelsigner tried to point to the approval of the CHIPS Act as good news for Intel’s future. But, Intel CFO David Zinsner acknowledged that the company is not likely to see any of that government money until sometime next year, and analysts seemed unmoved by Intel’s promises of a brighter future.
Regarding the quarterly numbers, Zinsner told analysts during Intel’s earnings call that revenue was $15.3 billion, “15% below our original Q2 guidance as our CCG and DCAI businesses both underperformed our expectations.” He also said gross margin for the quarter was 45%, “600 basis points below guidance on lower revenue and Sapphire Rapids pre-production charges, offset by lower manufacturing costs.”
Intel reported 29 cents earnings per share, a whopping 41 cents below the company’s guidance, and operating profit of $1.1 billion, which was down 73%.
Zinsner blamed some increasingly familiar factors for the bad quarter: “First, a weakening and uncertain macroeconomic environment impacted by inflation, higher interest rates and the war in Ukraine. Second, a much larger-than-expected OEM inventory correction as our customers adjust to this new macroeconomic environment. Third, worse-than-expected COVID-driven demand reductions and supply dislocations in China and other parts of the supply chain. Due to the difficult macroeconomic environment, together with our own execution challenges, our results for the quarter were well below expectations and necessitate a significant revision to our full year financial guidance.”
Full-year revenue expectations have been lowered from previous guidance of $76 billion to somewhere in the range of between $65 billion to $68 billion, driven by lower expectations for Intel’s Data Center and AI business and its Client Computing Group. Intel also is lowering its net capex for the year by about $4 billion to $23 billion, and is slowing down hiring.
CHIPS Act response
Amid the bad news, Gelsinger was upbeat about Congressional approval of the CHIPS Act, calling it “historic legislation. Literally, since World War II, there might not have been a more important piece of industrial policy that came forward through Congress… This is great for the semiconductor industry. This is beneficial to Intel. This was one of the pieces of the smart capital program, as we described back at investor day, and now seeing this come across the line will clearly be part of that ability for us to invest aggressively in the strategy that we described to you. We see this as an accelerant to our strategy and something that will give us the capacity to both meet our product needs, as well as our foundry customer needs as well.”
He added, “I hope everybody on the line just realizes how significant the passage of this was for semiconductors, for technology, for long-term research. This was huge. We were thrilled to be a part of it.”