Question Intel Q2 Results - Terrible

[jpiniero]

https://d1io3yog0oux5.cloudfront.net/_0f37de80c52d83ac6338b4805dea84aa/intel/db/887/8856/earnings_release/Q2+22_EarningsRelease+%281%29.pdf

Revenue down 22%.

Edit: Oh and it gets better... Intel posted a loss!

 

[Doug S]

Intel has spent the last 15 years or so making a lot of really bad decisions. I'm just a little surprised it took this long to catch up with them. And why the chips act thing is a bad idea. Make taxpayers pay for their bad behavior? Reward being selfish and short sighted, with no consequences? Ugh.

They should add a requirement that the money is for foundries only, not IDM, to require Intel to decide whether they want to spin off the fabs and get money, or keep everything in house and do it on their own.

There are obvious conflicts of interest operating a foundry and IDM together.

 

[IntelUser2000]

It's not just about the drop in revenue. It's about Intel's datacenter/cloud business. Microsoft +20%, Amazon +36%. And then look at Intel. That just doesn't fit. Datacenter and especially cloud are still rapidly growing despite other not so great numbers even from Amazon and/or Microsoft. But despite that Intel's numbers are still trash. And if you're just looking at the GM drop you know exactly why Intel is in trouble despite the DC/Cloud market as a whole growing.

No one denies their issue in server. But client dropped a quarter, while the uncompetitive server is "only" 16%.

Is it because their client is far less competitive? No.

Servers will follow as a whole, just not now.

I mean, let's not sugar coat it. Intel's stock is being hit uniquely because of its unique failures. "Macroeconomic conditions" or otherwise, the bleeding won't stop until Intel can convince investors it's capable of a predictable cadence of competitive products. Oh, and that has to happen before their customers abandon them.

No doubt. But things like the huge drop in client wouldn't have changed much even if we had something like Arrowlake instead of Alderlake. It might have hurt less, but we did reach the point of good enough 15 years ago. The drop in 2008 happened despite Core 2 and Core ix. Without people forced to stay at home the demand wouldn't have happened. We are beyond saturated for amount of computers in our modern society with all the Smart devices.

 

[CHADBOGA]

Luckily for Intel, AMD is now in their rear view mirror.

 

[scannall]

Luckily for Intel, AMD is now in their rear view mirror.

And that Apple is merely a "Lifestyle" company.

 

[Saylick]

Luckily for Intel, AMD is now in their rear view mirror.

 

[Saylick]

Intel's drop is much steeper than Apple. Intel's competitiveness in the server market combined with covid demand for low-end processors that only they could provide made the drop so severe.

AMD took all of the high-margin business - I assume the demand is even higher due to increased energy prices in the data center. Because Intel had massive capacity, there were able to bring in massive business from the consumer and laptop market during covid. That left them highly exposed to the cooling consumer market. And since energy efficiency is so important for the cloud, no one is going to want to use Intel if AMD has a way lower TCO when AMD can meet demand. In addition, AMD increased its substrate capacity recently, and AMD's Xilinx is also crushing Intel with high-margin products.

If Intel was competitive in the growing data center market, the drop would be nowhere near as severe.

100% this. AMD cannot supply the entire server market by themselves, so given the once in a century demand for all things semiconductor, everyone wins even those with fundamentally inferior products. However, when demand drops, it doesn't drop equally. It drops for the inferior products first and the best products last. As the quote goes, the tide receded and Intel was caught swimming completely naked. What's even worse for them is that their design side has always been the ones keeping their fab side afloat. Now that the design side cannot maintain the same profit levels, it will be much harder to keep their foundry business successful, hence opening up their fabs so that others can keep the volumes high when their products alone cannot do it. The foundry business has become the albatross around their necks, and it's a vicious cycle / positive feedback loop that's hard to get out of. If I were an Intel investor, I would be crapping my pants right about now. I would say goodbye to positive cash flow for a while and just pray that they don't cut the dividend. If Intel does cut the dividend in favor of stock buybacks, that won't look good to the public either, especially when the US government just gave them a multi-billion dollar life jacket.

 

[Exist50]

100% this. AMD cannot supply the entire server market by themselves, so given the once in a century demand for all things semiconductor, everyone wins even those with fundamentally inferior products. However, when demand drops, it doesn't drop equally. It drops for the inferior products first and the best products last. As the quote goes, the tide receded and Intel was caught swimming completely naked. What's even worse for them is that their design side has always been the ones keeping their fab side afloat. Now that the design side cannot maintain the same profit levels, it will be much harder to keep their foundry business successful, hence opening up their fabs so that others can keep the volumes high when their products alone cannot do it. The foundry business has become the albatross around their necks, and it's a vicious cycle / positive feedback loop that's hard to get out of. If I were an Intel investor, I would be crapping my pants right about now. I would say goodbye to positive cash flow for a while and just pray that they don't cut the dividend. If Intel does cut the dividend in favor of stock buybacks, that won't look good to the public either, especially when the US government just gave them a multi-billion dollar life jacket.

Arguably, just this once, the foundry side bailed them out by having supply for the COVID surge. And they can't really blame the current product delays on the fabs.

 

[plopke]

Was optane really that unexpected? With how Micron pulling the plug on it a while ago because just not cost effective, but was still the producing partner for Intel , Intel had to still find a other place to produce Optane on long run or am i wrong here?

I am just surprised people not focusing more on the MASSIVE drop in notebook market.

https://twitter.com/x/status/1552764407696031749

Desktop 2.792 -> 2289
Notebook 6.734->4.751

I mean what is that -28%? with value that matches almost their ENTIRE desktop department ???????????

operating income on client computing 4,029 -> 1,085 !!!!!!!!!!!


EDIT:

https://twitter.com/x/status/1552769039008669701

 

[Saylick]

Was optane really that unexpected? With how Micron pulling the plug on it a while ago because just not cost effective, but was still the producing partner for Intel , Intel had to still find a other place to produce Optane on long run or am i wrong here?

I am just surprised people not focusing more on the MASSIVE drop in notebook market.

https://twitter.com/x/status/1552764407696031749

Desktop 2.792 -> 2289
Notebook 6.734->4.751

I mean what is that -28%? with value that matches almost their ENTIRE desktop department ???????????

operating income on client computing 4,029 -> 1,085 !!!!!!!!!!!

I might be wrong here, but I think notebook included a lot of Chromebooks and that sort. You know, low margin and budget stuff which gets cut first when there's a demand pullback. On their last earnings they cited a softening in demand for education as a reason for weakened client sales.

 

[eek2121]

AMD's Q2 earnings report is on August 2nd (next Tuesday).

In case it isn't apparent, AMD's earnings report will also not meet industry expectations.

HINT: The entire market is seeing a downturn. I'm NOT defending Intel here (you know me lol), Intel's miss is a whole Simpson's moment: "HAHA!".

I myself lost my job due to layoffs. Layoffs which resulted from removal of access to "virtually" free money as stated directly by the CEO. I did find another one thankfully (and quickly at that), and my side businesses kept me afloat (a bunch of websites).

My point is that a bigger economic downturn is at hand, and Intel's loss is only partially due to AMD. Everyone is going to feel pain in the coming 12-18 months. Please strap in.

 

[Saylick]

In case it isn't apparent, AMD's earnings report will also not meet industry expectations.

HINT: The entire market is seeing a downturn. I'm NOT defending Intel here (you know me lol), Intel's miss is a whole Simpson's moment: "HAHA!".

I myself lost my job due to layoffs. Layoffs which resulted from removal of access to "virtually" free money as stated directly by the CEO. I did find another one thankfully (and quickly at that), and my side businesses kept me afloat (a bunch of websites).

My point is that a bigger economic downturn is at hand, and Intel's loss is only partially due to AMD. Everyone is going to feel pain in the coming 12-18 months. Please strap in.

Sorry to hear that you got laid off, but glad to hear you found employment afterwards.

I think AMD guided pretty conservatively at the beginning of the year, and more importantly they set that guide accounting for a slow-down in the PC market somewhere in the high single digits (that's what they said). We'll just have to see how much of the demand in the PC space has been destroyed and whether or not their server/enterprise sales made up for it. I think crucially AMD not reducing their TSMC N5 allotment signals to me that demand for their next generation products is projected to remain strong. Come Tuesday we will see whether or not they meet expectations, and more importantly whether or not they reduce their full year guidance.

Edit: Wanted to drop some quotes from AMD's Q1 Earnings Call for reference. Emphasis mine. All of the analysts are hammering every company about softening demand and trying to poke holes into each companies' thesis. AMD was no exception, seeing that pretty much half of the analysts ask some kind of question regarding the PC market and how AMD could still guide for 60% revenue growth in light of softened demand. AMD's argument was simple: have the better product, enter premium, high margin markets where demand destruction is less likely to harm them, and just straight up take market share such that they make money even when the overall pie shrinks.

Matt Ramsay -- Cowen and Company -- Analyst

Thank you very much, everybody. Good afternoon. Congratulations, Lisa on, obviously, getting Xilinx closed and the strong results. I guess there's a lot going on from a macro perspective in the markets that you serve and in the supply chains, Lisa.

So I mean, in the first half of the year, I think you're doing, I don't know, 54%, 55% organic growth in the first quarter. Maybe you could talk me through a bit the puts and takes in the quarter. I think there's a perception that you have additional supply coming online. There's obviously supply constraints and lockdowns in China.

Your Server business doing extraordinarily well in the numbers that you just printed and then maybe some perception of a softening in the PC market. So there's a lot going on, and I'd kind of love you to walk me through the puts and takes of the quarter, if you could.

Lisa Su -- Chairman and Chief Executive Officer

Yes, absolutely, Matt. Thanks for the question. So we did have a very strong first quarter. There is a lot going on, without a doubt, in the business.

I would say, if you look at the strength in our business in the first quarter, it was really broad-based. So very, very strong Server results. We continue to gain share. We continue to bring more supply online there.

Also, very strong results in our Semi-Custom or game console business, as well as in the Client and Graphics businesses. There is some softness in the PC market. But we had, for the last number of quarters, actually been shifting our mix to the higher end or the more premium segments of the PC market, and so that's where more of our exposure is. And we actually saw significant growth in our PC business sequentially as we started ramping our Ryzen 6000 notebooks.

And that resulted in strong ASP growth, as well as just our key market segments of premium, commercial and gaming being covered there. As we go forward, obviously, all of the things that you talked about are in play. That being the case, I think we've managed through the supply situations very well. We continue to work with our customers and ensure that we're optimizing our builds to their builds.

And with the addition of Xilinx, we also have another set of end markets that have very strong demand that are all additive to our business.

------------------------------

Matt Ramsay -- Cowen and Company -- Analyst

Got it. I appreciate all the color. I guess as my follow-up question, I wanted to examine the full year guidance that you've given. Obviously, it includes Xilinx so it's a little bit apples and oranges from last year.

But I think in the press release, you guys mentioned that you expect some upside from the original 31% organic growth guidance. If you have any comments on magnitude there, that would be helpful. And then, I think just what investors would love to hear from you is maybe your view on the data center capex spending environment and also on the PC market. I think you guys had been maybe a bit more conservative than some of your competition in your market commentary about PCs maybe being flattish coming into this year.

I imagine there's some new puts and takes to that. So just some thoughts on how you guys constructed the guidance for the year, especially relative to the original 31% would be really helpful.

Lisa Su -- Chairman and Chief Executive Officer

Yes. So lots of questions in there, Matt, so let me try to go through them. So first on the full year 2022 guide, it is a significant increase in guidance, up 60%. There are a couple of pieces to that.

On the organic side of the AMD business, we originally guided up 31% based on what we saw in the market in January. As we look at the market now and our own sort of customer and supply situation, we see that organic growth higher, into the mid-30s. That's primarily driven by very strong demand in our Server business, very strong demand in our Console or Semi-Custom business, additional supply coming online. We have taken a bit more of a conservative perspective on the PC market.

Again, I think the softness is in certain parts of the market. It's not in all parts of the market. And our focus is on where we add the most value in the market and that is in the premium segments. In terms of the Xilinx piece of it, the full year addition, 3.5 quarters of Xilinx is a significant add.

On a pro forma basis, the Xilinx business is also growing very well, and it's growing sort of like in the low 20s, if you consider full year compared to calendar year 2021. So overall, I think we have a lot -- a broad-based set of growth drivers and multiple levers for growth as we go through the year. And we continue to work on working with our customers on where the demand is and ensuring that we're satisfying that demand.

------------------------------

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Very helpful. And then Lisa, my second question, kind of two or three interrelated question on the PC market. So what is your new sense of what the PC TAM can be this year versus what you thought before? And then I think as part of that, your competitor has mentioned several times that they are back in the market with Alder Lake and they are taking a lot of share, so I'm wondering what you have seen there. And then finally, what's your share in the commercial market today versus what it was last year? So just something on TAM, competition and commercial exposure.

Lisa Su -- Chairman and Chief Executive Officer

Sure. So Vivek, when we kind of started the year, we were thinking that the PC TAM could be flat to, let's call it, down, let's call it, low mid-single digits. I think given sort of how we've started this year and then some of the other things in the market, we're taking a more conservative approach to the PC TAM. So for our modeling for the full year guidance, we're modeling something like down high single digits.

Now, a lot of things can happen between now and then, so I would say that I think that's a good place for us to model. Within that, we've always been very focused on where we can add the most value and the premium segments, Ryzen 6000, our Rembrandt product, is extremely well positioned from a battery life or performance standpoint. We have a number of commercial, very good systems that are in the process of being launched. I think we're excited about that.

To your question about commercial share, we're still underrepresented in the commercial market, and we know that and that's a focus area for us. I think overall, from a market share standpoint, we believe we're focused in the right segments. And so, even under the backdrop of, let's call it, a softer PC market, that we will -- we can continue to expect to gain revenue share in the process. And that's sort of our overall strategy.

But I think the other piece of it is we have so many levers in the business now as we go forward. I think the strength in the business is really looking at the overall data center portfolio, the PC portfolio, the gaming portfolio and the Xilinx portfolio together, there are lots of levers for growth. And as we go through this year, we see that being very helpful.

 

[Doug S]

I might be wrong here, but I think notebook included a lot of Chromebooks and that sort. You know, low margin and budget stuff which gets cut first when there's a demand pullback. On their last earnings they cited a softening in demand for education as a reason for weakened client sales.

Yes it did, and the big spike in Chromebooks was pandemic related - schools were buying them for kids learning remotely. The government was making relief money available that paid for them.

Now they are back in class, and replacing those Chromebooks someday will be a much lower priority when they have to spend their own budget.

But the main thing is that the PC market has been slowing shrinking for about a decade until the covid spike. I always expected it would revert back to pre pandemic numbers and resume that slow slide. They can blame supply chain all they want, but there is nothing that's fundamentally changed about the PC market to expect it won't revert back to its former course once everything shakes out.

 

[Karnak]

The entire market is seeing a downturn.

Well that's definetely not the case for the data center/cloud market as a whole. Which is still growing pretty fast for now.

You'll see especially that on tuesday. There's a reason for that big drop in Intel's GM and that's not bad luck or anything like that, but competivness in the server/cloud market and AMD eating a good chuck of their market share right now.

 

[John Carmack]

https://twitter.com/x/status/1552770822594613248

At long last the Age of Digestion has ended.

 

[KompuKare]

Not directly related to these results, but what determines what a company reports in their financial statements?

I ask because these Intel figure are pretty detailed, while what I've seen for AMD are rather vague.

During the big shortages where there was very little RDNA2 availability compared to Ampere, I remember wanting to get an idea of how good a deal the console manufacturers were getting and trying to work out the margins there. AMD's report were totally opaque on this.

 

[Karnak]

I remember wanting to get an idea of how good a deal the console manufacturers were getting and trying to work out the margins there.

Think somewhere around the low 30's. It's not in their reports itself but I remember Su talking about console margins during some calls. If she get's asked during these you'll get an answer for that.

 

[coercitiv]

Not directly related to these results, but what determines what a company reports in their financial statements?

It's always a balance between what they want to show and what they need to hide. Back in the mobile contra-revenue days, Intel reorganized their business to hide mobile division losses by diluting them into a profitable "client computing group".

 

[TheELF]

They spend all the cash they made this quarter on building new FABs, 7.19 bil on "net additions to property and equipment"
Making it look like they are loosing money will probably have some positive effect on taxes in the future.
Has anybody any insight on why they had a 50% tax rate this quarter?

 

[poke01]

Both Meta and Apple are showing considerable revenue declines.

Apple's revenue was more than expected. It's iPhone line actually went up by just a bit. Mac was down due to supply chain and lockdowns in china.

Apple's profit was $19 Billion and revenue was $83 billion. These are impressive. Most thought the iPhone will go down. Tim Cook is a supply chain wizard.

Intel can survive if it focuses well and does not delay anymore.

 

[DrMrLordX]

Datacenter is still growing by a lot, how the hell are those numbers THAT bad?

Still taking in all the data here, but in general, Intel has relied too heavily on 14nm shipments in DCG in the near past, and it continues eating them alive quarter after quarter. 10nm-family products still haven't fully taken over for Cascade Lake-SP in terms to volume or (past) revenue. Sapphire Rapids continues to disappoint, and it looks like Intel is finally taking the heat that they deserve over that product.

 

[igor_kavinski]

Which Intel CEO is to blame for the current woes? Or is it actually AMD’s CEO? (publicnewstime.com)

Wow. Blame AMD's CEO. Amazing!

 

[jpiniero]

Intel posted the 10Q.

Notebook: Volume down 38%, ASP up 13%
Desktop: Volume down 19%, ASP up 1% ("lower demand for education products", even in desktop... interesting)
Server: Volume down 12%, ASP down 10%

 

[eek2121]

Well that's definetely not the case for the data center/cloud market as a whole. Which is still growing pretty fast for now.

You will see a downturn there as well, it will be milder and will happen later.

Apple's revenue was more than expected. It's iPhone line actually went up by just a bit. Mac was down due to supply chain and lockdowns in china.

Apple's profit was $19 Billion and revenue was $83 billion. These are impressive. Most thought the iPhone will go down. Tim Cook is a supply chain wizard.

Intel can survive if it focuses well and does not delay anymore.

Have you used an iPhone 13? I have a pro max and it outclasses every other phone I have owned. It is no surprise to me they are selling like hot cakes.

 

[poke01]

You will see a downturn there as well, it will be milder and will happen later.

Have you used an iPhone 13? I have a pro max and it outclasses every other phone I have owned. It is no surprise to me they are selling like hot cakes.

No I haven't but I heard the iPhone 13 series has great battery life and performance.

 

[poke01]

Which Intel CEO is to blame for the current woes? Or is it actually AMD’s CEO? (publicnewstime.com)

Wow. Blame AMD's CEO. Amazing!

The Intel board needs changing.