Intel CEO Pat Gelsinger faces a myriad of challenges beyond the realm of 5G. Since assuming leadership in February 2021, Gelsinger has been striving to rejuvenate the struggling US chipmaker. However, Intel’s share price has plummeted by over 40% during his tenure, attributed to manufacturing obstacles, loss of market share in core sectors, and the ascendance of Nvidia. While 5G poses as one of Intel’s most daunting issues this year, it grapples with many of the same challenges affecting its broader business landscape.
A notable concern specific to 5G is a market deceleration due to telecom operators pausing network deployments or depleting existing inventory. This trend contributed to a 19% year-over-year decline in sales for Ericsson’s network business. Gelsinger cited “inventory headwinds” in the 5G market as a factor behind the struggles faced by Intel’s network and edge division.
During Intel’s first-quarter earnings call, Gelsinger highlighted significant declines in the 5G market, contrasting with modest growth in sales of other network and edge products. Overall revenues in this segment declined by 8% to $1.4 billion, making it the only major product line to contract.
Although Intel’s total sales saw a 9% increase to approximately $12.7 billion, investors expressed dissatisfaction with the cautious revenue outlook. Intel’s projection of second-quarter revenues at $13 billion (midpoint) was only marginally higher than the previous year’s figure. While Intel’s gross margin improved year-over-year to 45.1%, it fell significantly short of its previous 60% benchmark. Additionally, net profit for the first quarter stood at $800 million, a stark contrast to the $4.9 billion reported in the same period last year under Gelsinger’s leadership.
Intel cannot be solely held accountable for the 5G spending slowdown impacting the entire market. The company supplies basestation chips to major company like Ericsson, who together dominate a significant portion of the global 5G market outside China. Consequently, when these vendors face setbacks, Intel’s business is inevitably affected.
Furthermore, the overall 5G market has been contracting. Sales of radio access network (RAN) equipment dropped by 11% to just over $40 billion last year, with forecasts anticipating a further decline of 4-6% this year. Ericsson’s CEO, Börje Ekholm, described even the 4% projection as “optimistic” during the first-quarter earnings update with analysts.
