Intel warns of chip shortages due to Chinese COVID lockdowns

Inflationary pressures, component concerns, and a drop in demand dragged down Intel’s PC chip business by 13 percent versus a year ago, a black mark against what was an otherwise strong first quarter of 2022 results.

That group, the Client Computing Group (CCG), reported revenue that fell 13 percent to $9.3 billion. Overall, Intel reported net income of $8.1 billion, which grew a whopping 141 percent versus a year ago. Revenue dipped by 7 percent to $18.4 billion, however.

The dip in CCG revenues, Intel’s largest business segment, hurt its overall business. Intel’s Datacenter and AI Group, its second largest business group, saw revenue increase 22 percent to $6 billion. Intel’s Network and Edge Group (NEX) also recorded revenue growth of 23 percent to $2.2 billion, and its other groups all grew, too.

“In our PC business, we continue to see strong commercial demand, offset by low-end and consumer and education softness and the impact of no longer shipping to customers in Russia and Belarus,” said David Zinsner, the Intel chief financial officer who was appointed in January.

“Further, component supply constraints continue to be a challenge with the most recent COVID lockdowns in Shanghai further increasing supply-chain risks and contributing to inflationary pressures that are having a negative impact on PC TAM [Total Available Market] for the year. As a result, we’re seeing OEMs continue to lower inventory levels to better match demand and align with other system components. We expect elements of this inventory burn to continue in [the second quarter] subsiding in the second half of the year.”

Pat Gelsinger, Intel’s chief executive, said that while he believes that the industry is at the “beginning of a long-term growth cycle across semiconductors,” Intel sees some “matched-set” limitations in areas like Ethernet as softening in the consumer PC market. (“Matched set” has become an industry term for the inability to shop a PC with shortages of a critical component to make up a “set” of components, preventing those PCs from being shipped.)

“Chip shortages cost the US economy $240 billion last year, and we expect the industry will continue to see challenges until at least 2024 in areas of foundry capacity and tool availability,” Gelsinger said.

Chinese cities, including Shenzhen and Shanghai, have suffered lockdowns as COVID has flared up once again. Microsoft, like Intel, has begun warning of new supply-chain hiccups as manufacturing slows or stops. However, some component customers have stockpiled inventory, including PC makers, who are apparently choosing, in some cases, to simply build PCs based upon what’s inside their own warehouses. While Intel believes that customers will begin buying components in the second quarter and again during the second half of the year, executives were cautious about its future.

Intel predicted that second-quarter revenues would fall to about $18 billion and that earnings per share would dip from a whopping $1.98 to just $0.50, indicating that revenue and profits could fall. The guidance was predicated on the impact of an additional 14th week for the lockdowns in Shanghai. Zinsner also said that Intel expects to manage the “inflationary environment” by lowering its own production costs and also raising prices “in certain segments of the business.” He did not say where Intel would raise prices.

“We’re estimating the impact to be relatively contained under the assumption that these restrictions are nearing an end,” Zinsner said. “Even under a short lockdown, we anticipate it will take some time for the supply chain to normalize. And if the lockdowns persist, or spread beyond Shanghai, we could see more material impact to our outlook.”

Intel said that it has shipped more than 15 million Alder Lake 12th-gen Core processors, with more than 250 designs planned for this year. Intel is shipping samples of Raptor Lake, its next-gen processor, to customers and still plans to follow that with Meteor Lake in 2023, as Intel’s earlier processor roadmap indicated. Intel continues to make “great progress” in its plans to deliver products on five manufacturing nodes in four years, Gelsinger said.

Gelsinger said that PCs from Acer, Asus, Dell, HP, Lenovo, Samsung, and others would use the first Alchemist GPUs it shipped earlier this year, part of the “Arc 3” category. Even more powerful designs with Arc 5 and Arc 7 will ship later this year, he said.