Munich The losses are huge, sales are falling sharply: Intel is doing badly and the prospects for the coming months are bleak. This is not good news for the billions in investments in new plants in Magdeburg announced by CEO Pat Gelsinger a year ago.
In the most recent quarter, the business of the American chip group collapsed: Revenues plummeted by a third to $14 billion, the bottom line was a loss of $700 million. For comparison: In the fourth quarter of 2022, the semiconductor manufacturer had still made a profit of 4.6 billion dollars.
A trend reversal is not in sight. At the lower end of the guidance, revenue for the current quarter will be $10.5 billion, the lowest in more than a decade. Analysts had expected $14 billion. In addition, there will be an operating loss, Intel announced late Thursday evening.
CEO Gelsinger is nevertheless confident: “I would like to remind everyone that we are on a journey spanning several years.” Two years ago, the 61-year-old took over the management of Intel. With huge investments, including in two plants in Saxony-Anhalt, the engineer wants to lead the chip manufacturer back to the top of the world.
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But the race to catch up falters before it has really picked up speed. Intel is suffering from the slump in the PC market: processors for office computers and laptops are the most important business for Americans.
The once highly profitable server division is also shrinking and earning almost no money. In the fourth quarter, sales collapsed by a third and operating profit fell by more than 80 percent.
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In this area, this year will decide whether Intel will succeed in turning the tide – and whether new plants like the one on the Elbe are still needed at all. Intel has just launched its latest, fourth generation of so-called Xeon processors. These are considered the brains of network computers, the so-called servers. They are in the data centers of Internet giants such as Google and Facebook, but also in thousands of medium-sized companies.
Just a few years ago, Intel practically dominated this business at will, but according to the experts at Mercury Research, its market share has now fallen to around 80 percent. Competitor AMD, in particular, is hard on Intel. This is particularly bitter for the group because the server chip business has been very lucrative for years and achieved significantly higher returns than processors for PCs and notebooks.
Intel paved the way for AMD itself
However, Intel is partly to blame for AMD’s triumphal march. Because the group originally wanted to deliver the processors now being presented in the summer of 2021. However, they were not technically mature and the market launch was delayed.
With the new Xeon processors, Intel now hopes to regain market share by solving urgent customer problems. Take energy consumption, for example: According to the manager responsible for the product line, Lisa Spelman, it is an option to reduce the power consumption of a server by 20 percent with only five percent less performance. “That could be very attractive for European customers in particular,” said the manager of the Handelsblatt. As a result of the war in Ukraine, electricity prices in Europe have risen sharply.
Customers see it quite positively that AMD is now a serious competitor. “It’s always good when there’s competition,” says Stefan Mink from Germany’s largest data center operator, Ionos.
Nevertheless, the new processors from Intel are competitive, judges the manager. Above all, it is important that they are more energy-efficient than previous generations. Many Ionos customers would still prefer servers with Intel processors because they have many years of experience with them. “Intel has set the standards for the last 20 years,” says the manager. Mink’s words carry weight: With more than 100,000 servers in 32 data centers, Ionos is one of Intel’s major customers in Europe.
The world’s leading server manufacturers have not turned their backs on Intel either. Dell, for example, is launching 17 model series with the new Xeon processors.
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In the past three years, the group has lost more than half of its value on the stock exchange. Competitor Nvidia has tripled its value in the same period, AMD is up almost 50 percent.
The big minus is also due to the fact that Intel – as with Xeon – was often unable to keep to its own schedules with its product launches. But that’s about to change, manager Spelman promises. The processors are now being tested on a large scale earlier in the development process than before. That is cumbersome and expensive. However, this will avoid delays in the future.
Analysts criticize Intel for “very weak” numbers
Investors are currently not believing in better times. When Intel presented the latest figures on Thursday evening, the course collapsed by ten percent in after-hours trading. The results were “very weak”, judged the US bank Wells Fargo. Contrary to usual practice, Gelsinger did not make a forecast for 2023 – and thus caused additional uncertainty.
This also applies to the new factories in Magdeburg. At the beginning of the month, a spokesman indicated that the group was no longer in such a hurry in view of the slump in sales: It was not clear when the construction work would begin. The reasoning: the geopolitical challenges have increased, demand has fallen, and inflation and recession are challenging the global economy.
“The project as a whole is making progress,” asserted CEO Gelsinger last week at the World Economic Forum in Davos. However, negotiations are still being held with the city, state and federal government about grants.
The comparatively high energy costs in Germany are the decisive issue. Intel wants to invest 17 billion, but demands up to 40 percent of the sum in subsidies. Only one thing is clear at the moment: State aid is more important than ever for Intel.
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