Poor sales of PC and server chips caused Intel's revenue for the fourth quarter of 2022 to dive 32% year on year, leading to a$664 million net loss for the quarter.

The outlook for Q1 of 2023 is not an optimistic one either, with CEO Pat Gelsinger telling analysts in a call, "Our results and our Q1 guidance are below what we expect of ourselves."  

However, he said that Intel is "working diligently to address the challenges brought on by current demand trends" and the company continues to have confidence in its long-term plans and trajectory.

Intel took the biggest hits across its two largest business units, with the chip maker's Client Computing Group (CCG) and Data Center and AI group (DCAI) posting year-on-year revenue drops of 36% and 33%, respectively.

Intel hit hardest by declining PC market

The CCG business unit, which makes desktop and laptop CPUs, posted$6.6 billion in revenue, down from$10.3 billion a year earlier. This freefall can largely be attributed to a significant and ongoing slump in the PC market. A report from IDC found that sales of PCs had fallen by 28.1% during the same period, findings that were echoed by research firms Canalys and Gartner, whose estimates showed a 29% and 28.5% drop, respectively. Gartner reported that this was the steepest decline since it started tracking the PC market in the mid-1990s.

This trend is likely to carry on into the first quarter of 2023, Gelsinger said on the call with analysts.

"In Q3, we provided an estimate for the calendar year 2023 PC consumption TAM of 270 million to 295 million units. Given continued uncertainty and demand signals we see in Q1, we expect the lower end of that range is a more likely outcome," he said.

However, Gelsinger did note that PC usage remains strong with people continuing to use them for the same things they used them for at the height of the COVID-induced move to remote working. As a result, he said, the "enduring and increasing value PCs have in our daily lives" provides reasons to be optimistic in the future.

How Intel's other business divisions fared

Intel's DCAI unit, which makes server chips, memory and field-programmable gate arrays (used to accelerate specific functions such as cryptography or signal processing), saw its revenue for the quarter fall to$4.3 billion from$6.4 billion a year earlier. Intel CFO David Zinsner told analysts this decline was largely driven by lower demand and cheaper competition.

Newer chip designs could save the company, though. Intel is already seeing significant customer demand for its newly launched 4th-generation Xeon scalable processors, Sapphire Rapids, Gelsinger said, adding that he expected that to ramp up further throughout the year.

Intel also plans to roll out its 5th-generation Xeon server processors, Emerald Rapids, during 2023 and follow that up in 2024 with the Granite Rapids and Sierra Forest server chips, its first to feature a mix of high-performance and high-efficiency cores.

Intel's Network and Edge unit, which makes chips for networking products, brought in$2.06 billion in revenue for the quarter, down 1% year on year. By comparison, Intel's Accelerated Computing Systems and Graphics (AXG) division reported a 1% increase in revenue, to$247 million.

While Intel did see double-digit revenue growth from its Mobileye and Intel Foundry Services (IFS) segments, growing 59% to$565 million and 30% to$319 million respectively, the success of those smaller divisions was not enough to balance out the damage caused by the slowdowns experienced by its CCG and DCAI divisions.

Despite the disappointing figures, Gelsinger told analysts that in addition to focusing on the day-to-day running of the company, Intel is examining "numerous additional value-creating initiatives" for 2023.

"Our ambitions are equalled by our passion, and our efforts across manufacturing, design, products and foundry are well on their way to driving our transformation and creating the flywheel, which is IDM 2.0," he concluded, referring to Intel's two-year-old strategy for manufacturing and innovation.