Intel will raise CPU prices after losing $500M this quarter

Intel will raise CPU prices after losing $500M this quarter

Intel reports an unexpected loss in the second quarter as demand falls and it has problems executing its product strategy.

Intel has dropped several bombshells by confirming it will raise prices, formally discontinuing Optane, and reporting an unexpected half billion dollar loss in the wake of poor PC demand amid poor execution.

Intel has already been rumoured to be preparing price hikes of between 10 to 20 per cent later this year, according to the Nikkei news service and subsequently confirmed by Dylan Martin of the Register. But Intel CFO David Zinsner said that Intel had been suffering from inflationary pricing, and that it would now pass along those costs along to its customers.

"We are increasing pricing," Zinsner said. "The pricing generally takes effect in the fourth quarter… You know we can absorb a lot of inflationary impact that others can't. And so we were able to, you know, kind of go a bit longer.

"But at this point now that some of the price increases, inflationary increases, have turned out to be more permanent, where there's a certain amount that we do need to pass on to the customers."

Neither Zinsner nor CEO Pat Gelsinger said how high the price hikes will be, exactly when they would take effect, or what products they would cover. But they were indicative of what surprisingly emerged as a rather horrible quarter for Intel. 

Intel confirmed that it has totally discontinued the entirety of the Optane memory business, will sell its drone business, and took ownership of the fact that it will not meet its graphics unit targets and that its driver software had been wholly inadequate.

There was a bright spot: Both the U.S. House and Senate have passed what's known as the CHIPS Act: a $52 billion package of investments and tax credits supporting the U.S. semiconductor market. Intel will benefit from that in 2023, Zinsner said.

Still, it was a shocking shortfall that had analysts questioning why they hadn't been given a heads-up.

This was not our brightest hour in terms of execution, Gelsinger said, speaking of Sapphire Rapids, an AI GPU that has also been delayed by about six months, another mea culpa for Thursday's call. But the statement could apply to Intel as a whole.

Bad all around

In all, though, it was a bad quarter for Intel. Intel reported a loss of $500 million, down 109 per cent from a year ago, on revenue of $19.6 billion, which fell 22 per cent. Intel also predicted its results for the upcoming quarter, which indicates that the trend will get worse: Intel said that revenue will drop to between $15 billion and $16 billion, though the company expects to return to profitability.

What's going on? A combination of weakening demand for PCs and components, as well as what executives said was Intel's inability to properly execute its plans.

"This quarter's results were below the standards we have set for the company and our shareholders," Gelsinger said in a statement. "We must and will do better. The sudden and rapid decline in economic activity was the largest driver, but the shortfall also reflects our own execution issues."

Microsoft reported that the PC market deteriorated in June, supported by reports from analyst firms Gartner and IDC that said demand for PCs cratered after soaring during the pandemic. Intel said that it continues to expect the PC market to shrink by about 10 per cent during 2022. 

In part, that's due to wrinkles in the supply of components out of Asia — the pandemic shut down key Chinese cities Shanghai and Shenzhen for weeks during the summer, and the inability of manufacturers to receive the components they needed (Ethernet and power supply components, specifically) halted their own sales. PC customers tried to sell through what inventory they had rather than buy more, Intel said.

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