Intel’s Shocking Earnings Show A Shift In The Chip Industry

Intel’s Shocking Earnings Show A Shift In The Chip Industry:

Intel stock fell 6.4% on Friday, a day after the report showed disappointing quarterly & full-year 2022 results.

According to one expert, there are “no words” to characterize Intel’s demise, which has occurred as consumer demand for PCs has slowed overall. The company reported a 32% year-over-year revenue decrease as well as a $644 million net loss for the quarter.

Intel Semiconductor Manufacturers Astounded Investors With Massive Losses:

From Intel Corp. to SK Hynix Inc., several of the world’s leading semiconductor producers have startled investors with massive losses as the year 2023 approaches. Taiwan Semiconductor Manufacturing Co. & Samsung Electronics Co., on the other hand, navigated the turmoil with greater agility, highlighting a changing of the guard.

Hynix Suffered Its Biggest Loss In History:

“Astonishingly terrible,” Bernstein analyst Stacy Rasgon said about Intel’s performance, which formerly set the standard for the entire semiconductor industry. Hynix of South Korea reported its largest loss in history and pledged to reduce output, capital expenditure, and other costs in order to recover.

Intel Generated About $13 Billion More Revenue Than Its US Rival:

Meanwhile, TSMC reported record earnings and predicted that, despite some weak spot in demand, revenue would increase again in 2023. The Taiwanese company surpassed Intel as the leading manufacturer of advanced logic chips, generating nearly $13 billion more revenue than its American rival. Samsung fared much better than its competitors, and boasted about its success by pledging to preserve investment while all of its competitors cut back.

The reality is that the two East Asian firms have built stronger businesses, and their size now threatens to bury the competition. TSMC has shown such expertise in designing custom semiconductors for clients such as Apple Inc. and Nvidia Corp. that no other chipmaker has a chance of bridging the gap anytime soon. Samsung, which comes close to matching TSMC’s production capabilities, has utilised that edge to outperform competitors such as Hynix and Micron Technology Inc. in the memory-chip market.

By Revenue, Samsung Is The World’s Largest Chipmaker:

Samsung, the world’s biggest chipmaker by sales, had a disastrous fourth quarter. Revenue at its semiconductor unit dropped 24% year on year, and operating income fell to a fraction of what it had been just three months before. Despite this, it was able to turn a profit while smaller competitors Western Digital Corp, Micron, and Hynix all recorded losses.

This Is An Interesting Test For Pat Gelsinger:

It’s a big test for Intel CEO Pat Gelsinger, who takes over the 54-year-old semiconductor business in 2021. Factors outside Intel’s control have exacerbated both the inventory & manufacturing concerns, with a declining PC market putting pressure on Intel’s profitability and prompting merchants to “adjust” their stockpiles, according to Gelsinger on a conference call with investors.

Intel’s Stock Has Dropped By More Than 46%:

“While we know this relationship will shift, determining when will be challenging,” the CEO told analysts. The stock of Intel is bottom more than 46% from its 52-week high.

Downturns in the semiconductor industry vary in length and severity, but larger companies typically weather them better. That is proving to be true once again. As a result, manufacturers of everything from smartphones to personal computers & industrial equipment have cut orders. They applied the brakes much faster than suppliers could reduce output, resulting in price drops and a costly lurch to slow factory output.

Samsung Is Doing Better Than Other Companies:

“Samsung generates positive cash flow while competitors generate negative cash flow,” said Marcello Ahn, portfolio manager at Quad Investment Management.

“When the memory business enters a next upcycle, Samsung’s cost base will be significantly lower than others, with larger margins.”
Being able to divide the vast expenses of operating chip facilities across a larger amount of goods exported, in instance, helps make activities more cost-effective.

Even the most bullish observers projected that TSMC would catch and overtake Intel. Last year, revenue at the Taiwanese company whose plants serve many of the world’s largest firms with outsourced production increased 33%, while Intel’s decreased 20%. It provides the most advanced production to many of Intel’s competitors and customers.

In The Chip Industry, Leadership Is Measured By Market Share And Revenue:

Leadership in the semiconductor business is evaluated by more than simply market share & revenue. Production technology, perhaps more than in any other industry, is critical to semiconductor performance. Having access to cutting-edge techniques and equipment allows chipmakers to produce chips that can be sold at a higher price because they are more capable.

Intel Dominated The Semiconductor Industry For Decades:

Intel, whose products gave Silicon Valley its name, controlled semiconductors for decades, and achieved this position in part by aggressive exploitation of the industry’s harsh economics. Executives would persuade investors that investing extensively in new factories, equipment, & research and development was the best use of corporate resources, especially when profits were under pressure. The idea was that if there was another time of high demand, Intel was in a better way to capitalize than rivals that backed off and allowed output to stagnate.

TSMC Plans To Invest $36 Billion In Capital Expenditure:

Both of Intel’s East Asian competitors have adopted that strategy. This year, TSMC plans to spend up to $36 billion on capital expenditure, which is more than analysts predicted. Earlier this week, Samsung bucked calls to cut down on investment, stating that it will invest at a similar pace to 2022, when it invested $39 billion on modernising manufacturing and creating facilities.

Intel, which has decided not to provide forecasts for this year, has stated that it is aiming for a “capex intensity” of about 35% of revenue. Analysts predict that Intel’s revenue will be around $51 billion this year, implying that its budget will be significantly lower than that of TSMC or Samsung.

Budget cuts in memory chips, where Samsung earns the majority of its semiconductor revenue, are also planned for 2023 at Micron, Hynix, and Western Digital, which has a production joint venture with Japan’s Kioxia Holdings Corp.

TSMC’s Forceful Spending Plans May Have An Impact On Intel:

While TSMC’s violent spending plans may put additional pressure on Intel, they are likely to benefit a wide range of companies in the electronics industry and beyond. Many of them have used TSMC’s capabilities to develop and manufacture new products where they previously struggled to compete with Intel chips. Apple is the most notable example, with TSMC exclusively producing Silicon chips for iPhones and Mac computers.

Advanced Micro Devices Inc., which has struggled in the shadow of Intel for the majority of its existence, uses TSMC to manufacture server and PC processors as well as graphics chips. The company now brings in more revenue per quarter than it did annually as recently as 2017. AMD’s datacenter business increased sales by 42% year on year in the fourth quarter. Meanwhile, Intel’s datacenter & artificial intelligence businesses were down 33%.

“We are in the early stages of a historical generational shift in compute power in Silicon Valley,” wrote Rosenblatt Securities analyst Hans Mosesmann in response to the disparity in results. In the December quarter, revenue from its automotive & linked equipment segments helped offset a downturn in mobile phone demand.


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