Intel ( (INTC) – Get Intel Corporation Report) is the bearer of additional bad news.
The chip giant will give an extra blow to consumers and businesses concerned about the health of the economy. For several weeks in fact, consumers have seen their bills for groceries and other products increase. The price of gasoline at the pump has jumped when they go to fill up their car.
And the situation is not getting any better since inflation remains at its highest for forty years, which should push the Federal Reserve to be even more aggressive in raising rates. However, economists have already warned that this monetary policy would plunge the economy into recession.
U.S. inflation accelerated to a fresh forty-year high last month, the Bureau of Labor Statistics announced on July 13.
The headline consumer price index for the month of June was estimated to have risen 9.1% from last year, up from the 8.6% pace recorded in May and firmly ahead of the Street consensus forecast of 8.8%. The June reading was the fastest since December of 1981.
Intel Will Raise Prices of Its Chips
For consumers already concerned about how much their groceries will cost, they will also have to look closely at the labels of tech products like computers, laptops and consoles. Indeed, Intel plans to raise the price of its chips by the end of the year, a spokesperson confirms to The Street.
“On its Q1 earnings call, Intel indicated that it would increase pricing in certain segments of the business due to inflationary pressures,” company spokeswoman Penny Bruce said in an emailed statement. “The company has begun to inform customers of these changes.”
Japanese newspaper Nikkei was the first to report about the price increases.
Intel will in particular increase the prices of its flagship products such as central processing units (CPUs) for servers and computers and several other products, including chips for for wi-fi and otehr connectivity. These price increases could be around 20% for certain chips. The group has not yet finalized the extent of the increases, the Nikkei said. These increases will undoubtedly lead to higher prices for PCs and laptops during the holiday season.
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“Given the inflationary environment, we are looking for targeted price increases in certain segments. So that really hasn’t shown up that much yet, but will be part of the story going forward through the year,” Chief Financial Officer Dave Zinsner told analysts during the first quarter earnings’ call.
Demand Is Slowing Down
The executive said the move came as material and commodity costs skyrocketed, adding pressure to a semiconductor industry already facing rising labor costs and covid-19-related disruptions. The sector is also facing weakening demand as consumers begin to make trade-offs in anticipation of the sharp slowdown in the economy.
“More specifically, in our PC business, we continue to see strong commercial demand, offset by low-end consumer and education softness and the impact of no longer shipping to customers in Russia and Belarus,” Zinsner explained at the time.
“Further, component supply constraints continue to be a challenge with the most recent covid lockdowns in Shanghai, further increasing supply chain risk and contributing to inflationary pressures that are having a negative impact on PC” for the year.
“As a result, we’re seeing OEMs continue to lower inventory levels to better match demand and align with other system components,” Zinsner concluded, referring to original equipment manufacturers.
Worldwide PCD shipments reached 118.1 million units during the first quarter of 2022 (1Q22), posting a decline of 5.4% year over year as demand slowed, research and data company IDC announced last month. PCs, including desktops, notebooks, and workstations, declined by 5.6% year over year, while the tablet market declined 5.1% year over year.
Intel customers have already warned that this drop in demand was real and that we were no longer really in a shortage of chips.
Acer Chairman Jason Chen told reporters on July 13 that his company is no longer suffering a chip shortage.
“Some of the chip suppliers’ CEOs even called me recently to buy more chips from them,” Chen said. “The situation has changed.”
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