Intel has announced its financial results for its third quarter of fiscal 2023. Intel is back to profitability after earning $15.3 billion in revenue, down 20% year-over-year. Still, the company had to lower its guidance for the fourth quarter due to macroeconomic weakness and continued challenges for its client and data center business units.
Revenue Flat, Margins Up
Intel's Q3 FY2023 revenue totaled $15.3 billion, down 20% compared to the same quarter a year ago, but what was within the company's guidance was provided back in July. In addition, Intel's gross margin was down to 45.9%, which is higher when compared to the company's gross margin in Q2 but is still well below the company's historical results or long-term goals. As for the company's net income, it dropped 85% YoY to $1 billion.
"Despite the worsening economic conditions, we delivered solid results and made significant progress with our product and process execution during the quarter," said Pat Gelsinger, Intel CEO.
Client PC Group Makes Some Money as Data Center Unit Posts Zero Profit
Intel's Client Computing Group earned $8.1 billion in Q3 2022, down 17% from the same quarter a year ago, whereas operating income for the group totaled $1.7 billion, down from $3.6 billion in Q3 2021. Sales of Intel's processors and chipsets for client systems dropped because of softening PC demand by consumers, the education sector, small businesses, and OEM inventory reductions. Intel stressed that while inventory levels at PC makers somewhat reduced during the quarter, they are still high enough to affect the company's CPU and chipset shipments for quite some time.
Intel's Accelerated Computing Systems and Graphics Group (AXG) earnings grew to $185 million from $171 million in the same quarter a year ago. It happened not because the company finally started to ship its long-awaited discrete graphics processors for desktops, laptops, and servers but because of a 'custom compute product ramp.' While Intel does not name the product, we might speculate that the device in question could be Intel's cryptocurrency mining chip. While Ponte Vecchio compute GPU is now in production, Intel did not announce its volume shipments, so it is likely that a cryptocurrency mining chip drove AXG's results.
Intel's Datacenter and AI Group (DCAI) generated a $4.2 billion revenue (down 27% YoY) and earned zero operating income. Intel blames lower server volumes and customer inventory reductions for such horrible results, though growing competition from AMD and delayed Sapphire Rapids ramp-up also significantly affected DCAI's results.
Intel's Network and Edge Group was the only business unit whose revenue increased yearly. NEX generated $2.3 billion, up 14% compared to the same quarter a year ago, but its operating profit dropped to $75 million from $511 million in Q3 2021. Intel says that as demand for 5G, Edge, and Ethernet products was strong, demand for its Xeon CPUs aimed at networking slumped, offsetting gains.
Intel's Mobileye business, which just went public earlier this week, generated $450 million in sales, up 38% from a year ago, and its profitability climbed to $142 million, or by 12% YoY.
As for Intel's Foundry Services, its revenue of $171 million was essentially flat, with $174 million in Q3 2021, whereas its losses deepened to $103 million as the company increased its spending on new fabs and tools.
Revises Full Year Forecast, Braces for Global Recession
Intel expects its fourth-quarter revenue to be $14 billion – $15 billion (down 23% – 28% YoY) and its gross margin to remain at around 45%. Since there is no chance that Q4 2023 will be a breakthrough quarter for Intel, the company now expects its full-year revenue to be between $63 billion and $64 billion, a decrease of 14% – 16% compared to the previous year and a decline of $2 billion – $4 billion from the July guidance. The company's gross margin is expected to be 47.5%.
Intel expects macroeconomic weakness to last for several quarters at least, which is why it is implementing a program to cut costs by $3 billion in 2023 and by $8 billion – $10 billion by the end of 2025. Essentially, this confirms Intel's intention to reduce its workforce significantly.
