Intel just had its worst year since the dot-com bust, and it won’t get better anytime soon

Intel Corp. ended 2022 with its worst financial results since the dot-com bust more than 20 years ago, thanks to a double whammy of a downturn in both PCs and data centers that isn’t going to turn around anytime soon.

annual earnings fell more than 60% in 2022, and revenue for the year dove more than 20%, declines that the legendary Silicon Valley chip maker has not seen since 2001, when the end of the dot-com boom brought in a profit decline of 88% and sales dropped 21%. Back then, the rebound was immediate, as profit more than doubled the next year.

This time, we may not have even hit bottom yet — Profit fell more than 100% on an unadjusted basis in the fourth quarter, as revenue dove 32%. Executives were too concerned about ongoing murkiness ahead to provide a forecast beyond the first quarter, but the forecast they did provide was even grimmer than their results, calling for a revenue decline of roughly 40% and adjusted losses.

Intel shares tumbled nearly 10% in after-hours trading, which was not an overreaction, and neither is the comparison to the dot-com-bust era. In 2001, Intel rival Advanced Micro Devices Inc.
was beginning to make headway with its first foray into servers just as personal-computer sales slowed. Now, history seems to be repeating itself, with Intel seeing fierce competition from AMD in the highly profitable data center space and suffering from the biggest decline in PC shipments on record.

Previously from Therese: Which CEO is to blame for Intel’s current woes?

“It’s astonishing,” Bernstein Research analyst Stacy Rasgon told CNBC on Thursday, in an interview where his astonishment at such a poor report was bared for all to see.

Rasgon was most agog at the company’s profit margin of 39.2% in the quarter, which he said would have been three points lower if Intel had not made an accounting change to extend the depreciation of certain machinery and equipment by three years. He also speculated that Intel’s issues in the data center market are either stemming from pricing or yield issues with new chips.

Intel is trying to move its data-center customers to the long delayed and recently launched Sapphire Rapids chips, which have a more expensive new memory requirement, so it is feasible it has been discounting older data-center chips. The data-center segment’s operating income fell to $371 million, a fraction of the $2.3 billion in sales a year ago.

In-depth: How did Intel lose its Silicon Valley crown?

Chief Executive Pat Gelsinger told analysts on the company’s call that the ramp for Sapphire Rapids had gotten “great response” from customers so far.

“This year will be very much about ramping that and we’ll see the improvements in both market share position as well as ASPs [average selling prices], as we ramp that product through the year,” he said.

But that was really as close as Gelsinger got to offering much optimism for the year ahead. Executives were loathe to make any predictions beyond the first quarter, which he predicted to include “the most significant inventory decline at our customers that we’ve seen in recent history,” which is not a good thing — as customers use up all their chips on hand for manufacturing, they are slower to order new chips.

Gelsinger did try to paint a brighter picture six months down the line, noting that Intel is making progress lowering its operating costs and that the second half of the year things should start to improve.

“Recovery in the second-half of the year is what we expect overall,” Gelsinger said.

Deep Dive: Intel stock’s dividend sticks out among chip makers. But a cut may be coming.

Even that is hard to believe, though, after Intel’s optimistic 2022 forecast was repeatedly cut in the second half of the year, continuing a pattern of failure in that department. The PC market does not look ready to reverse from its current downfall, and AMD’s new server chips may still have an advantage on Intel’s long-delayed new product, so a turnaround does not appear imminent.

Gelsinger returned to helm an already sinking ship, but he so far has failed to get it back on top of the water, and is now using accounting tricks just to lessen the blow. As he lays off workers in order to maintain an outsize dividend that Intel can no longer afford, investors have to wonder if its worth going down with his ship. It may take longer than they expect to recover.

Full earnings coverage: Intel stock drops nearly 10% after earnings miss, execs predict quarterly loss as data-center market shrinks

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