Following an announcement that Intel Corp.’s executive team will slash their salaries by up to 25 per cent and cut employees’ pay by five per cent as a result of a dire economic slump, the dismal news continued yesterday, with S&P Global Ratings lowering the company’s rating to A from A+.
A statement from the ratings company about the move said the Santa Clara, Calif.-based semiconductor manufacturer reported fourth-quarter earnings last week “well short of our expectations due to continued weak PC demand, inventory corrections across client and server end markets, and company-specific execution issues.
“We expect weak operating results in 2023 across its client computing, data centre and AI, and network and edge business segments, resulting in about US$7 billion to US$8 billion negative free operating cash flow (FOCF) before dividends.”
The company added that it took the rating action for several reasons including:
- Continued market share loss to competitor Advanced Micro Devices (AMD), especially in the server end market, which could persist through 2024.
- An expectation that the company’s revenue will decline by a percentage in the mid-teens this year, to an estimated US$53 billion.
“The company recently launched its fourth-generation Intel Xeon processor, Sapphire Rapids, in January 2023, which was originally scheduled for a fall 2021 release,” S&P noted. “Product launch delays have allowed AMD to gain significant market share over the past two years, threatening Intel’s long-established dominant market position in the x86 client and server CPU markets.”
In contrast to Intel’s woes, Bloomberg reported yesterday that AMD “gave a better-than-feared sales forecast for the first quarter as gains in the lucrative server market help make up for a collapse in demand for PC chips.
Revenue will be as much as US$5.6 billion in the period, AMD said in a statement Tuesday, in line with an average analyst prediction of US$5.56 billion – with estimates coming in as low as US$5 billion.
In a release, the company said that for full year 2022, it reported revenue of US$23.6 billion, gross margin of 45 per cent, operating income of US$1.3 billion, net income of US$1.3 billion and diluted earnings per share of US$0.84.
“2022 was a strong year for AMD as we delivered best-in-class growth and record revenue despite the weak PC environment in the second half of the year,” said AMD chair and chief executive officer Dr. Lisa Su.
“We accelerated our data centre momentum and closed our strategic acquisition of Xilinx, significantly diversifying our business and strengthening our financial model. Although the demand environment is mixed, we are confident in our ability to gain market share in 2023 and deliver long-term growth based on our differentiated product portfolio.”
Meanwhile, S&P stated that it continues to view Intel’s product roadmap as “aggressive given its track record of technology missteps. Intel remains committed to delivering five process nodes in four years, achieving process performance parity in 2024 and regaining its leadership position.
“Intel’s heavy capital spending, which we estimate will be about US$15 billion to US$17 billion in 2023 and US$19 billion to US$20 billion in 2024, net of government support and various subsidies, will weigh heavily on its profitability over the next several years.”
David T. Tsui, an analyst with S&P, said the company’s strategy involving new nodes “is very important to them. But if there are any delays in node transition then their products will be less competitive compared to their competitors, AMD specifically.
“There’s investment required for them to move along that aggressive node transition curve. And it’s our expectation that free cash flow is going to be negative in 2023 and 2024.”
He noted the company is taking actions, including an announced pledge to cut upwards of US$10 billion in costs annually by 2025, but said “it’s not just about cost cuts – it’s about looking at the whole company, the fixed costs, the CAPEX and hopefully to a lesser extent R&D to see what is reasonable to optimize, and make sure they have enough funding to execute on their (node) strategy.”
