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Insights Tag: smartautomotive

Execution Woes and Economy Sink Intel Earnings

Intel, under immense pressure from internal execution delays in key segments – DCAI, AXG and product design, and economic headwinds from falling consumer demand and fiscal tightening, reported its eighth consecutive YoY revenue decline and its first net loss in 30 years, amounting to $454 Mn.

  • The GAAP revenue dropped to $15.3 Bn, a 22% YoY decline and missed its estimate by $2.7 Bn for the Q2 outlook due to weaker demand in CCG and lose of market share to AMD.
  • Gross margins declined 15% YoY and stood at 44.8% compared to 59.8% in the previous year quarter due to component pricing not passed onto consumers

This was well below the guidance issued at its Investor Day and Q1 quarterly earnings where it projected to be above 50%.

Counterpoint Research Intel Revenue Chart
Source: Counterpoint Estimates, Company Earnings

Segment Reports

Client Computing: OEM inventory reductions and soft demand contribute to 25% revenue decline; Lowest since 2014

Client Computing Revenues were at $7.7 Bn a 25% decline in YoY revenues and 29% decline in the ‘Notebook’ segment. The biggest decline factors were:

  • OEM inventory reduction followed by softening demand from consumer, education and SMB (Small and Medium Sized Business) customers.

The company expects the revenue to decline in Q3 and then rise again in Q4 due to inventory balancing and price increases. The company expects a 10% decline in the PC TAM for this financial year.

The company expects its roadmap of Raptor Lake processors to be on schedule for this Q3 and Q4 for desktop and notebook chip releases respectively.

Counterpoint Research Intel CCG Chart
Source: Counterpoint Estimates, Company Earnings

Datacenter and AI (DCAI) underperforms due to execution issues, match-set issues and ethernet & power supply component shortages

The DCAI revenue was $4.6 Bn a 16% YoY decline.

  • The revenue slump was primarily due to execution issues of stepping out ‘Sapphire Rapids’ which has been delayed three times due to security and quality performance not being in line with expectations and competitor products.

The company had launched its last generation of processors – Ice Lake in 2019 and Cooper Lake in 2020 with some upgrades in 2021.

  • The revenue for DCAI will remain downcast for the whole year due to the financial impact of Sapphire Rapids ramp only being realized next year and competitive pressures for its existing product line. The company expects a high-volume SKU ramp later this year.

The company launched its next gen AI accelerator Gaudi2 and its software platform security capability – Amber for AI driven continuous optimizations.
On an optimistic note, the company emphasizes the deals it has with Meta, Nvidia and AWS for its multi-year and multi-generational compute expansion.

Counterpoint Research Intel DCAI Chart
Source: Counterpoint Estimates, Company Earnings

Network and Edge (NEX) segment provides some green amidst the deep red CCG and DCAI revenues

Revenue grew 11% YoY at $2.3 Bn with Xeon D (processor for Network & Edge) and Mount Evans helping to drive the revenue as leading network companies adopt the product into their network infrastructure.

Accelerated Computing Systems and Graphics (AXG) revenue grew 5% with software issues delaying some launches

The AXG revenue stood at $186 Mn representing a 5% increase in revenue YoY.

  • The company is poised to miss its target of 4-million-unit shipments in 2022 but to achieve a target of $1 bn in revenues. The Intel Art GPU series remained the revenue driver.
  • Intel Arc A5 and A7 Desktop GPU Cards were delayed due to software issues and will start shipping in Q3.
  • Data Center GPU – Arctic Sound has shipped to customers and the financial impact will be seen in the next two quarters.

Mobileye has its best ever quarter revenue at $460 Mn representing 46% YoY growth

Mobileye continued to outperform the market and increased its backlog by over 21 million units for the upcoming quarters. 16 million units were shipped in the first half of 2022. The company expects to add more customers and is extensively deploying capital for next generation ADAS products.

Intel Foundry Services (IFS) gains support and forms IFS Cloud Alliance to improve foundry design efficiency, time-to-market

The revenue of IFS was $126 Mn representing a 54% decline YoY due to lower mass tool sales as well as a revenue decrease in the automotive segment due to customer shortages in the automotive market.

  • The company has added $1 Bn in revenue pipeline for this quarter, including a new client –  MediaTek – on Intel 16 node, making the revenue pipeline about $6 Bn in total.
  • The advanced node revenue pipeline remains undecided as the company is still working on test chips and design libraries to secure orders. The company is also expected to benefit from the recently passed CHIPS act from 2023 onwards and the industry wide transition to System and Package chipsets vis-à-vis a board chipsets.

Additionally, the IFS Cloud alliance was launched with leading cloud providers – Azure and AWS, and EDA tool providers – Ansys, Cadence, Siemens and Synopsys, to enable secure design environments in the cloud, improving design efficiency and accelerating the time-to-market for chips.

Outlook for Q3 2022 and FY 2022

  • Q3 revenue to decline 12-17% YoY to $15-$16 Bn and gross margin to be at 46.5%.
  • FY 2022 revenue to be in range of $65-$68 Bn down $8-$11 Bn from earlier guidance.
  • Capex reduced by $4 Bn from earlier forecasts to $23 Bn.

The capex reduction will directly impact the wafer fab equipment delivery and possible delays in fab expansion and capacity.

The primary reasons for the forecast revenue declines include – product roadmap delays in DCAI and software issues in AXG product segments. Dampened demand from desktop and notebook industry amid worsening consumer sentiment is also dragging on the revenue outlook.

The company has already indicated a not-too-good Q3 with some breathing room available from Q4.

Though, the company has reiterated its position is on track for its future nodes and product releases we believe the latter half-year launches will crystallize the current status of its advanced nodes and likely delivery of its future product roadmaps.

COVID-19 Impact: Global Automakers Remain Gloomy; Expecting Further Declines

Overview

While China is progressing toward recovery from the COVID-19 with a strong bounce-back seen in some vehicle sales, other regions are seeing a daily worsening of the crisis. This will lead to a downward revision of estimates for the industry in 2020.

USA

U.S automakers, who until now relied on drawing-down existing inventories, are faced with parts stockouts and labor lockdowns. The eventual production loss is expected to have a significant impact on the US economy and auto sales. It is estimated that for a week’s loss in vehicle production and sales, the U.S. economy loses over 90,000 jobs and over $7 billion in earnings.

Looking to intervene and urgently mitigate the negative impact of the virus outbreak to the US economy, the Trump administration has agreed a deal with Senate Democrats and Republicans for an unprecedented recovery package of US$ 2 Trillion. A share of these funds is expected to be focused on, directly and indirectly, supporting the auto sector.

Given the sudden rise in COVID-19 cases in the country (see Counterpoint’s weekly COVID-19 update), most automakers are expected to continue plant shutdowns until mid- or late April. Assuming the coronavirus outbreak starts stabilizing during Q2, and the recovery package helps boost consumer demand, Counterpoint expects the market recovery to start in Q4 2020. With these assumptions, US new-car demand for 2020 is estimated to drop by around 3 million vehicles to 14.6 million from 17.6 million vehicles in 2019.  

Europe and RoW

With lockdowns progressively being announced around the world to prevent the spread of the virus., auto OEMs have also suspended operation across Europe and parts of Asia. In Europe, Fiat has temporarily closed its factories in Italy which produces about 600,000 vehicles annually, representing nearly 4 percent of Europe’s total output. While Volkswagen too has shut down most of its European assembly plants for two weeks, its main plant at Wolfsburg continues to be running for the time being. Most other OEMs too, despite the suspension, are working with their supply partners to ensure parts availability as per earlier planned volumes, in readiness for production resuming.

As the resultant unemployment rises rapidly across the world, earlier global GDP growth expectations have been wiped out and a global economic recession declared. Discretionary purchases, particularly of passenger vehicles, are expected to slow down significantly around the world.

On a brighter note, with new cases of the virus having significantly declined in China, some automakers and suppliers have resumed operations. Toyota, for example, has reopened one of its plants in Guangzhou.

Revised Global Vehicle Forecast

It is evident that all the leading automotive markets are facing negative economic impacts from the virus outbreak. Counterpoint estimates close to 8 million units being dropped from the leading 3 markets of China, North America and Europe.

Following the 2008-2009 recession, policy makers used vehicles as a way to stimulate the economy by offering cash in exchange for old cars – the so-called scrappage schemes. The timing of the COVID-19 crisis aligns with Europe’s introduction of stringent emission controls. There is potential for the financial stimulus packages being implemented by many states to again be used to remove older, more polluting vehicles and support the recovery in vehicle sales.

While China does appear to be recovering, the situation remains fragile. Considering interventions to stimulate demand, the authorities are reviewing policies and possibly easing restrictions. Industry bodies have suggested purchase tax cuts on smaller vehicles, temporary credit lines and moderating emission rules. China’s automakers and dealers have already started promotional activities to revive interest and retails. However, with low to no inventories currently at dealerships, and stocks expected only by mid-April, we expect sales in China to recover gradually as customers regain confidence with business-as-usual likely only by Q4 2020.

This latest round of revisions also considers a significant proportion of over 600,000 vehicle units from India (included in RoW), the world’s 4th largest automotive market, which has announced a 3-week national lockdown.

Exhibit 2: COVID-19 to Lead Global Automotive Industry in Recession

Counterpoint: COVID-19 Impact on Automotive Industry

Conclusion

With a highly probable scenario that the global COVID-19 impact will now continue into H2 2020, Counterpoint Analysts have revised the global vehicle sales outlook to fall to about 81 million units, a decline of more than 9 million units from 2019.

(As the situation remains fluid, further revisions and updates will continue to be made as new developments happen around the world)

Global Automotive Outlook and Trends: 2020 and Beyond

The global automotive industry is entering into a new decade in which we expect a series of unprecedented challenges, but also opportunities – and it starts with 2020.

More Turbulence Ahead

If 2019 was a year of considerable disruption and turbulence in the auto industry, 2020 will likely see even more.  A cooling economy in China aggravated by the prolonged US-China trade war, a struggling automotive market in India, and a looming Brexit, coupled with tough emission standards in Europe, continue to adversely affect global automotive demand. The lower economic activity and consumer confidence mean continued depressed vehicle sales. Leading automakers, including BMW and GM, have announced guidance for lower profits and sales in 2020.

Global automotive demand is flat-lining; quite different from the typical “peaks and troughs” cycles seen before. There are also profound structural changes visible. The sacred order of the automotive ecosystem is under threat with disruptive forces – such as vehicle connectivity – encouraging new technology entrants to rethink the way we move around. Lifestyle and mobility preferences are changing as frequently as the apps on smartphones.

Will car companies, with their engineering legacy and coveted brands, be able to deal with new ways of addressing mobility based on sharing and on-demand access? These questions need to be urgently answered by auto OEMs to avoid missing out on these secular shifts.

Exhibit 1: Global Vehicle Sales, Million Units

Counterpoint: Global Vehicle Sales

Megatrends defining 2020

Connectivity, autonomy, shared mobility, and electrification of vehicles (CASE) remain the defining megatrends in 2020, with all automakers focusing on either accelerating or consolidating their advances in these fields.

Let’s have a deeper look at each trend and its likely implications for 2020:

Connectivity

The growing digitalization of the cockpit makes the connectivity of vehicles among the top trends in 2020. Telematic applications have radically transformed the automotive industry and will continue to impact it in ways no other technology has done before. This year, connected cars are expected to evolve even further, providing enhanced personalization options to users that are similar to what they have come to expect from their smartphones. Advances in IoT, telematics and smart applications together have greatly improved the connectivity, communications and responses, offering seamless infotainment, safety, security and vehicle management to drivers, passengers and commuters. Embedded connectivity is now offered as standard OE fitment across premium and mid-premium category cars.

As connected services potentially offer multiple subscription revenue streams for automakers, Counterpoint expects embedded connectivity to remain a key focus area in 2020. While automakers in the US and Europe currently dominate the sales of embedded connected cars, China’s automakers are accelerating their efforts on connectivity too. Interior dashboards upgraded with integration of computer vision and augmented reality (AR) tools, will be another key focus, offering additional layers of safety, personalization and driving experience to connected vehicle subscribers.

Autonomous Vehicles

Even though the progress of AV has not met industry expectations, automakers made huge strides towards AVs in 2019. Enhanced ADAS basic autonomy (Level 1 and Level 2) safety features like autonomous emergency braking (AEB) are now becoming standard features in most markets on mid-range to premium vehicles in 2020, on account of regulatory pressures (e.g.: Euro NCAP and NHTSA) and the growing consumer preference for these features.

Clearly, claims to achieve full autonomy by 2020 are too bold with automakers missing their development targets in 2019. GM Cruise failed to launch its autonomous vehicle in 2019, and has not specified any new deadline. Ford, having announced it would skip straight to Level 4, has retracted and is focused on achieving Level 3. Waymo’s robo-taxi service launched in Phoenix, Arizona in 2019, is always subject to having a stand-by driver, ready to take control in emergencies.

With safety concerns and significant investments hampering the progress towards fully autonomous vehicles, automakers are looking more and more at collaborating their efforts towards AV development, sharing costs and risks, by building alliances. AV related partnerships and JVs accounted for more than US$9 Billion during Q1-Q3 2019.

Shared Mobility

Mobility as a service (MaaS) is expected to continue gaining popularity in 2020. Profitability, however, remains a key concern for the service providers. Shared mobility continued to grow in 2019 driven by growing trend of sharing economy, convenience and cost benefits versus owning a vehicle. Based on the findings from Counterpoint Research’s 2019 survey in India, two out of three frequent users of shared mobility services consider ride-hailing more economical than owning a car. Uber and Lyft launched their IPOs in 2019 citing aggressive expansion plans.

While shared mobility will continue to grow in 2020, competition is expected to become tough with shared mobility providers having plans for overseas expansion. Losses can lead to market consolidation going forward. In 2019, Grab delayed its IPO until it gets profitable. BMW shutdown services of ReachNow car sharing Seattle and Portland. Other small service providers such as Juno and Coup shutdown their regional/city level operations due to losses.

Electrification

In 2020, most carmakers will be focusing on electrification. Expect to hear a lot more from OEMs and adjacent players about technologies, batteries, charging infrastructure, products and policies that are being developed to meet tightening fleet average CO2 figures at one end, and to encourage EV adoption at the other. The decline of diesel in Europe has forced OEMs to move faster in their efforts on electrified vehicles to meet the tougher emission targets. For some OEMs this direction also presents the unattractive trade-off between avoiding fines and selling electric vehicles at below cost price.

Coronavirus

The COVID-19 outbreak continues to develop fast. There are signs of successful containment in some areas in China, while fears grow accelerating infection rates in other countries – Japan notably. How the situation develops over the coming days, weeks and even months remains uncertain, creating a risky business environment. With effective Government interventions initiated, the situation is expected to be bought under control within March, allowing the Government to cautiously lift the clampdowns progressively from April. However, if the epidemic continues into Q2, possibly even into Q3, it will considerably impact the overall global automotive demand.

Conclusion

The global automotive industry recovery in 2020 largely depends upon a recovery in the Chinese economy. Stringent emission and safety standards, coupled with growing digitalization in vehicles will make EVs, connected cars and AVs the key focus areas for automakers in 2020 and beyond. Automakers will need to evolve fast to keep pace with innovation in these areas.

Partnerships, alliances and joint ventures with various stakeholders in the ecosystem will be the strategic option adopted by automakers in 2020 looking to save money while keeping pace with the fast-evolving automotive landscape.

The outbreak of coronavirus is causing ad hoc interruptions in the supply chain, with each OEM, plant, and model expected to have different levels of exposure, requiring different countermeasures. The long-term impact of coronavirus on the industry remains uncertain. However, its prolonged spread will have an adverse impact on global automotive sales.

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