Intel Corporation Catastrophe

Intel chip

It’s quite common for stock exchange companies to present weak quarterly figures from time to time. But what the US chip manufacturer Intel (INTC) delivered a few days ago is simply a disaster.

Perhaps you have already read about it in the media: Intel suffered setbacks on practically all fronts in the second quarter. The company actually wanted to set strong growth impulses in the current year. But apparently nothing will come of it.

Intel: Massive Drop in Sales in Q2

Take a look for yourself: In Q2, Intel achieved a turnover of just $15.3 billion. This corresponds to a drop of a whopping 22% compared to the previous year. Among other things, the PC business proved to be problematic. Here, revenues in Q2 slumped by a quarter to $7.7 billion.

The reasons for this are open to speculation. In any case, computer sales had risen sharply in recent years – driven in part by the Corona pandemic and the home office trend. Now, high inflation may have caused consumers to become more cautious when it comes to larger purchases such as PCs.

But that’s not all: Intel also suffered significant revenue losses in data center chips. Here, revenues fell by 16% to $4.6 billion. Experts attribute this, among other things, to the strong competition, which is apparently able to claim more and more market share for itself.

Deep in the Red

The result was also catastrophic. Intel posted a net loss of $454 million in the second quarter. For comparison: In the same period last year, the company had generated a surplus of more than $5 billion.

Intel did not only justify the red figures with the weak global economy and the high energy and personnel costs. The discontinuation of the Optane business had also led to considerable write-downs amounting to almost $560 million. The business includes, for example, the phase change memory “3D XPoint,” which is used in SSD hard disks, among other things.

In recent years, Optane did not exactly stand out with positive news. Again and again, Intel had to report weak demand and red figures for the business unit. This is one of the reasons why parts of the business have been sold in the meantime. Now the division is to be discontinued completely.

Intel Cuts Sales Forecast for 2022

Intel investors now need very strong nerves. Because the group is now much more pessimistic in view of the disastrous Q2 figures. A few days ago, Intel massively lowered its revenue forecast for 2022 – to a range of $65 to $68 billion. Previously, the company had held out the prospect of around $76 billion to shareholders.

Intel boss Pat Gelsinger had to admit that the results of the second quarter were below the standards that had been set for the company and the shareholders. One must become simply better.

High Subsidies Possible: Hope For Chip Production in Germany

Nevertheless, Intel still has an ace up its sleeve. The company wants to enter the production of computer chips on a massive scale in Europe. In Magdeburg, Germany for example, Americans are planning two gigantic semiconductor plants. Intel wants to use the factories to get closer to European customers and thus secure supply contracts from the automotive industry, for example.

The whole thing is quite ambitious, but also extremely expensive. For the Magdeburg site alone, Intel is pushing for investments of 17 billion euros. All the more reason for the Americans to hope that the EU will get involved. Brussels recently announced its intention to lure non-European chip manufacturers to Europe with subsidies.

However, this “EU Chips Act” is not yet in the bag. Observers expect that it could be passed next year. Intel, at any rate, believes in the EU’s help and plans to start construction of the Magdeburg site in the spring of 2023. Commissioning could then take place in 2027.

My Conclusion For You

The disappointment on the stock market due to the weak Q2 numbers was literally palpable. Intel shares crashed last Friday double-digit. The paper had already lost considerable value beforehand.

Now the remaining shareholders have little choice but to bet on the long-term prospects of the US chip manufacturer. In principle, this is not so bad. 

After all, the market for semiconductors is quite simply essential for the functioning of the global economy. Computer chips are increasingly being installed in a number of devices, machines and cars.

In addition to the further development of the economy, as an interested investor you should now pay particular attention to politics. If the EU does in fact initiate high subsidies for Intel, this would take some of the risk out of the stock in the medium term. It remains exciting in any case.

Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.
Dr. Gregor Bauer
Dr. Gregor Bauer
Dr. Gregor Bauer credits his trading success to combining fundamental aspects of a trade with expert technical analysis. A Certified Financial Technician from the International Federation of Technical Analysts (IFTA), he’s rated as one of Germany’s top 300 economic experts.

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