AI Revenue Surge Fails to Rescue PC Slump
Intel reported third-quarter earnings on October 30, with data center and AI-related sales up 78% year-on-year to $7.3 billion, but revenue at its PC-centric Client Computing division fell 5% year-on-year to $8.1 billion, still the company's largest revenue division. The company guided fourth-quarter revenue of only $15 billion to $16 billion due to memory shortages reducing computer shipments, far below the market consensus of $17.1 billion, with adjusted earnings per share of only $0.25, also below the expected $0.44, and gross margin set to plunge by 6 percentage points.
After the earnings release, Intel shares collapsed 29%, the worst single-day performance since 1974, triggering a rout across semiconductor stocks. AMD, also hit by the PC market, plunged nearly 11%, while Qualcomm, which partnered with Microsoft to push into the consumer PC market, also tumbled more than 11%. As a major smartphone processor maker, Qualcomm was additionally hit by a sharp drop in global handset shipments.
PC Shipments Collapse by More Than 20%
In early October, research firm Counterpoint Research released preliminary data showing global PC shipments in the third quarter of this year fell 21% year-on-year to 57 million units. Gartner put third-quarter PC shipments at 55.4 million units, down 22.4% year-on-year, while IDC put them at 6270 million units, down 20.1% year-on-year. The three firms use different methodologies and their absolute figures differ, but the trend is consistent, showing computer shipments shrinking at a pace of more than 20%, with the fourth-quarter decline potentially widening to more than 25%.
Investors had previously hoped that higher average selling prices would help offset lower shipment volumes, and that PC makers with server businesses could use AI demand to make up for weakness on the consumer side, but Intel's earnings shattered those expectations. Sharp price hikes for laptops have already hammered the consumer PC market, with key components such as memory, hard drives, storage chips and graphics cards surging several-fold, leaving consumers unable to afford new computers and reluctant to buy new phones. The consumer market has been brutally hit, with no signs of recovery yet.
Memory Shortage May Last Until 2030
At root, the violent expansion of investment in AI data center buildouts has driven memory and other key component prices sky-high, and the consumer PC and phone markets can only recover once those prices ease. But SK Hynix has already forecast that the memory market will remain undersupplied through 2030, meaning the winter for Intel and the PC industry could last for years, as the AI frenzy drives chip stocks higher while killing off the former cash-cow consumer market.