Chip Shortage Cost US Economy $240B in 2021, Says Intel CEO
Lockdowns in Shanghai and the war in Ukraine demonstrate “that the world needs more resilient and more geographically balanced semiconductor manufacturing,” said Intel CEO Pat Gelsinger on an earnings call Thursday for fiscal Q1 ended April 2. The chip shortage cost the U.S. economy $240 billion last year, “and we expect the industry will continue to see challenges until at least 2024 in areas like foundry capacity and tool availability,” he said.
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Recent Intel investments in Arizona, New Mexico and Ohio, plus its planned new projects in France and Germany, are “a significant step toward our moonshot goal of having half the world’s semiconductor manufacturing located in the U.S. and Europe,” said Gelsinger. “The pace at which we can reach this goal is dependent on the actions of the U.S. and other governments.”
The U.S. “showed leadership” when Congress passed the Chips Act, “but the global situation has grown even more serious since then,” said Gelsinger. Having recently testified before the Senate about the “critical need” for the U.S. to fund the Chips Act, “I continue to encourage Congress to fund this critical legislation and enable us to move faster towards making a balanced semiconductor supply chain a reality,” he said.
Intel’s manufacturing network “continues to perform well in a challenging environment,” said Gelsinger. “For the first time in years, Intel fabs and our substrate supply are close to meeting our customers' demand.” The company has successfully been able “to mitigate any significant disruptions to our factory operations from the war in Ukraine, supplier shutdowns and COVID lockdowns in China,” he said.
Intel Foundry Services hit a $1 billion “run rate” for the first time, and “our overall customer pipeline remains robust,” said the CEO. “We now have more than 10 qualified opportunities in advanced stages of engagement across our process and package offerings that collectively represent a deal value of greater than $5 billion.” Intel’s foundry work with five “target anchor customers is progressing well,” he said. “We expect additional updates later this year.”
Strong commercial demand in Intel’s PC business is being offset by “softness” in the low-end consumer and education segments, plus “the impact of no longer shipping to customers in Russia and Belarus,” said Chief Financial Officer David Zinsner. “Component supply constraints continue to be a challenge with the most recent COVID lockdowns in Shanghai,” he said.
The constraints are “further increasing supply chain risk and contributing to inflationary pressures,” and are having a “negative impact” on the total addressable market for PCs in 2022, said Zinsner. “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 Q2, subsiding in the second half of the year.”
Intel expects its Q2 revenue to decline 2% sequentially from Q1 on the “short-term headwinds” and the impact of an additional 14th week in Q1, said Zinsner. “For the lockdowns in Shanghai, we're estimating the impact to be relatively contained under the assumption that these restrictions are nearing an end. Even under a short lockdown, we anticipate it will take some time for the supply chain to normalize.” If the lockdowns persist or spread beyond Shanghai, “we could see more material impacts to our outlook,” he said.
Gelsinger is unfazed with Intel's projections of tepid revenue performance in Q2 because “we overachieved in Q1,” he said. “We were always forecasting a stronger second half of the year, and that's what gives us confidence” in reaffirming $76 billion in revenue for full-year 2022, he said. If the projection holds, that would mean nearly a 4% year-over-year revenue decline from 2021. The stock was trending 6.9% lower Friday at $43.59.