Intel’s ambitious push into AI-powered PC chips is encountering significant hurdles as customers gravitate toward older, more affordable processors in response to escalating U.S.-China trade tensions and economic uncertainties.​
Shift in Customer Preferences
The company’s latest AI-focused chips, including the Lunar Lake and Meteor Lake series, have experienced slower-than-anticipated adoption. In contrast, demand for previous-generation Raptor Lake processors has surged, leading to shortages in Intel’s ‘Intel 7’ process node capacity. This unexpected shift is attributed to customers seeking cost-effective solutions amid fears of impending tariffs and a potential economic downturn.
Michelle Johnston Holthaus, head of Intel’s products division, noted, “Macroeconomic concerns and tariffs have everybody hedging their bets.” She emphasized that both client and data center segments are witnessing strong demand for older-generation chips.
Impact of Trade Tensions
While U.S. tariffs have temporarily exempted chips, China’s proposed retaliatory tariffs—potentially exceeding 85% on U.S.-made chips—pose a significant threat to Intel’s business, particularly given China’s status as a major market for the company. This uncertainty has prompted customers to stockpile older processors, further boosting demand for legacy products.
Intel’s Chief Financial Officer, David Zinsner, expressed concerns about the broader economic implications, stating that the fluid trade policies and regulatory risks increase the likelihood of a global economic slowdown or recession.
Financial Outlook and Strategic Adjustments
Despite exceeding Wall Street expectations for first-quarter sales, Intel’s forecast for the second quarter falls below estimates, with projected revenue between $11.2 billion and $12.4 billion. The company attributes this cautious outlook to the ongoing trade war and its potential impact on demand.
In response to these challenges, Intel is implementing cost-cutting measures, including a reduction in operating expenses and capital expenditures. CEO Lip-Bu Tan has also announced a significant workforce reduction, cutting over 20% of the company’s employees, as part of a broader restructuring aimed at streamlining operations and refocusing on AI and foundry services.
Conclusion
Intel’s current predicament underscores the complexities of navigating technological innovation amid geopolitical and economic uncertainties. While the company’s AI chip initiatives face headwinds, the renewed demand for older processors offers a temporary reprieve. However, sustaining long-term growth will require strategic agility and a keen understanding of evolving market dynamics.
