It’s a story of two worlds for Intel
INTC,
lately. At a turbulent time for the silicon business, the computer-chip big late Thursday reported that fourth-quarter 2023 income rose 10% yr over yr, with a gross margin enhance of 6.5 factors. For the 2023 full-year outcomes, nevertheless, complete income was down 14% vs. 2022 and complete gross margin slipped to 40% from 42.6%.
Compared to firms like Taiwan Semiconductor Manufacturing
TSM,
and even Nvidia
NVDA,
with 2023 gross margins of 54% and 73% respectively, Intel continues to battle to search out methods to handle prices.
But trying on the total quarterly or full-year 2023 outcomes doesn’t inform the entire story. Intel’s two most vital enterprise items, CCG (consumer merchandise) and DCAI (information heart and AI infrastructure merchandise) couldn’t be on extra divergent paths.
The consumer group at Intel is the money cow, the a part of the corporate that has constantly supplied the income and {dollars} to function and develop new enterprise items and product traces. Looking at consumer group operations in final yr’s fourth quarter, issues look superb. Revenue was up 33% and working revenue jumped greater than 450%, with working revenue rising from $500 million to $2.9 billion in comparison with the identical quarter a yr in the past. The firm known as out “healthier alignment” to the stock scenario that was the trigger for concern over the previous couple of years as one of many major causes for the turnaround.
This paints 2024 as a possible progress alternative for consumer merchandise, inclusive of laptop computer and desktop CPU chips. Intel launched its new chips, known as Core Ultra, for the AI PC market final month, with some programs from companions together with Dell and HP accessible earlier than the vacation, and lots of extra coming this quarter. Intel’s capability to develop its consumer group earnings is strongly contingent on momentum and shopper pleasure over adopting PCs with this new AI functionality.
Many business analysts are calling for a “supercycle” of PC upgrades within the second half of 2024 as extra software program and attention-grabbing shopper use circumstances transfer AI computing from the cloud to your native PC. For now, I see AI PC demand as slightly comfortable. Looking on the fanatic expertise viewers, one I normal think about the main indicator of expertise developments, there’s little or no curiosity in “AI for AI’s sake” and as a substitute I see a way of endurance for that “wow” second to set off the shopping for cycle. I’m assured it’ll occur.
Intel isn’t the one participant on this AI PC house. Both AMD
AMD,
and Qualcomm
QCOM,
have excellent chips with built-in AI accelerators, and attention-grabbing startups like MemryX supply add-on AI chips, so Intel should compete on efficiency and flex its channel-influence muscle to create the perfect software program ecosystem for its components in an effort to stand out.
“We are past the point of simply shrugging it off with a ‘better luck next time’ mentality. ”
If this previous quarter’s outcomes supply quite a lot of optimism for the consumer aspect of Intel’s home, then they carry an equal quantity of questions for the data-center and AI infrastructure enterprise unit. Revenue dropped yr over yr by 10% and working revenue was down 38%, with an working margin of two%.
The firm commented in a press launch that the “CPU addressable market” was contracting and that there have been vital aggressive pressures on earnings. Yet we’re previous the purpose of merely shrugging it off with a “better luck next time” mentality. Intel’s Xeon CPU continues to be the dominant market-share chief within the data-center CPU chip house, even with the likes of AMD and its Epyc line of components making inroads. But that clearly isn’t sufficient to develop the enterprise.
Intel’s data-center group is having points executing on a plan to capitalize on the AI computing craze. While Nvidia inventory skyrockets to a $1.5 trillion valuation, Intel’s data-center GPU merchandise haven’t gained a foothold. And whereas the Gaudi line of AI accelerators appears good on paper and within the restricted benchmarks accessible, there’s no vital bellwether design wins or partnerships that point out a flood of gross sales can be taking place anytime quickly.
Considering AMD is projecting income from its MI300 AI server chip into the billions of {dollars} for 2024, it’s extremely regarding that Intel isn’t displaying a plan to counter. The firm introduced a management change for this enterprise unit this month, and whereas a wanted transfer, it isn’t an immediate band-aid to unravel the AI points Intel has.
Read: Missed the boat on AMD’s inventory surge? Why this analyst says you’re not too late.
During Intel’s earnings name Q&A, CEO Pat Gelsinger indicated that Intel’s focus for AI in 2024 can be extra on AI inference than coaching, activating and utilizing the AI fashions slightly than creating or constructing new ones. If the market is transferring that manner and must undertake a barely completely different infrastructure base for that to occur, it’ll lean extra to Intel’s strengths.
Additionally, Intel CFO David Zinsner instructed analysts on Thursday that there’s a “$2 billion pipeline” for its “discrete accelerator portfolio” for 2024. This is a optimistic signal that Intel may nonetheless make headway within the information heart AI house this yr with its Gaudi product. A pipeline isn’t the identical as official income projections or a much-needed buyer announcement, nevertheless it’s a extra optimistic signal than something that appeared within the firm’s earnings statements.
The as soon as vaunted community and edge enterprise unit (NEX) on the firm noticed income drop 24% yr over yr and working revenue drop to a rounding error of zero. And the foundry providers enterprise (IFS) will increase income to $291 million (up 63% yr over yr) however continues to be bleeding cash as the corporate spends capital in new amenities and partnerships.
This yr goes to be telling for Intel and the way it will transfer ahead into the second half the last decade. Can this once-unassailable tech big get again on its toes with Gelsinger’s assist and supply each manufacturing and product excellence? Or will it proceed to get overwhelmed down by Nvidia, AMD and even Qualcomm — firms that till just lately had been simply flies buzzing round its head?
Ryan Shrout is the President of Signal65 and founder at Shrout Research. Follow him on X @ryanshrout. Shrout has supplied consulting providers for AMD, Qualcomm, Intel, Arm Holdings, Micron Technology, Nvidia and others. Shrout holds shares of Intel.
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