Intel’s data centre business 25% under expectations in Q2

In the company’s recent earnings call, Intel reported that data centre and artificial intelligence (AI) business was down 16% year-over-year. Although data centre and AI still garnered $4.65 billion USD, this was a full 25% under expectations for second quarter earnings from that segment of Intel’s business.

Pat Gelsinger, CEO of Intel, said that the larger economy, in combination with internal company issues, was to blame for the drop in earnings. “Q2 results were disappointing, below the standards we have set for the company and below the commitments we have made to you, our shareholders.”

He continued, “The sudden and rapid decline in economic activity was the largest driver of the shortfall, but Q2 also reflected our own execution issues.”

Contributing factors included a general economic slowdown, supplier and vendor delays, CFO David Zisner added that capital investments made in Q2 should help to recoup earnings in future quarters but that to assist with the current drop in revenue, the company will cut capital expenditures by $4 billion USD through the end of year.

In an interview the following day, CEO Gelsinger said that it was time for Intel to exercise “a bit of austerity,” framing the Q2 news as an opportunity to make some changes to the company will make it more competitive in the future. Among these changes are divesting itself of several lines of business, including McAfee, NAND products, Intel Sports, RealSense, and its drone business.

Selling off these subsidiary products, in addition to curbing capital expenditures over the remaining half of FY 2022, is expected to help make up for the shortfall in revenues in the data centre business in Q2.

CFO Zisner expressed confidence in the long-term strategy for the company, noting, “We are taking necessary actions to manage through the current environment, including accelerating the deployment of our smart capital strategy, while reiterating our prior full-year adjusted free cash flow guidance and returning gross margins to our target range by the fourth quarter.”

“We remain fully committed to our business strategy, the long-term financial model communicated at our investor meeting and a strong and growing dividend.”