"We deserve to be down today. With the earnings we’ve reported and the guidance we gave, it is a bit of a reset. We’ve disappointed ourselves and our shareholders," Intel Inc. CEO Pat Gelsinger told Bloomberg Television last week, commenting on the fall in Intel’s share price after the company’s second quarter financials were released. Last Thursday, Intel reported a switch to a loss, revenues down 17% year-over-year at $15.3 billion, $2.6 billion below market estimates, and adjusted earnings per share well below expectations. The company also slashed its guidance.
Gelsinger was appointed to lead the giant US chipmaker after it had been afflicted by a technological, financial, and management crisis since the mid-2010s that saw it lose huge customers like Apple and Amazon and its leadership in chip design.
After eighteen months in the post, Gelsinger expected to pull the company out of the mire, but found himself in a complicated period that saw not only a decline in PC sales - Intel’s bread and butter - but a general economic slowdown. Fortunately for Intel, demand for chips for electric vehicles meant that Mobileye stood out as the company’s highest-growth business unit.
Gelsinger is trying to turn a huge ship around, but its response is slow. A large part of the loss that Intel posted in the second quarter was due to its attempt to exit businesses in which it was active in the past, such as memory, in which it made a loss of over $500 million in the second quarter alone. The company lost several hundred million dollars more because of a delay of more than a year in bringing its Arc graphics processors for desktops to market.
Intel does, however, have several cards up its sleeve, and hopes that they will soon prove winners. Some of them will make the company’s development centers in Israel even more important: the Raptor Lake processor that will compete with the performance of AMD; the ‘Intel 7" technology produced at the Kiryat Gat fab and proving popular; the Foundry strategy, whereby Intel will provide production capacity to other companies, in which the acquisition of Israel’s Tower Semiconductor, which has yet to be completed, will have a central role to play; and the Lunar Lake chip developed in Israel that is meant to be Intel’s answer to Apple’s M1, and through which Intel seeks to reach the low-power devices market. Over the next few weeks, Intel’s share price will reveal how far investors believe in these promises.
There is also another important golden egg in Intel’s difficult quarterly financials, namely Jerusalem-based Mobileye, for which the second quarter was a peak. Mobileye’s revenue for the quarter was $460 million, 41% more than in the corresponding quarter of 2021. Profit also grew substantially: operating profit was $190 million, up 43% in comparison with the corresponding quarter and representing a 41% operating margin.
Mobileye’s contribution to Intel’s revenue is still relatively modest, but, and this is important, investors have been searching unceasingly for growth engines for the future, and Mobileye certainly fills that bill.
Incidentally, the second quarter was meant to have been Mobileye’s last as part of Intel before its flotation on Nasdaq, which in the end was postponed sine die. It can therefore be assumed that the company made considerable efforts to present record quarterly figures, such as by bringing deals forward and perhaps speeding up new supply contracts. Still, the huge orders backlog indicates that Mobileye continues to maintain its dominant position in the global ADAS (advanced driver assistance systems) market. If the upturn on Wall Street at the end of last week is sustained and a sign of things to come in the next few months, it is not inconceivable that Mobileye’s postponed flotation will yet take place this year.
Published by Globes, Israel business news - en.globes.co.il - on August 1, 2022.
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