A Sino-US trade war that threatens Intel's revenue from its largest market, China, has unexpectedly fueled demand for the company’s older-generation personal computer and server chips, according to company executives on Thursday.
A worsening economic outlook and the prospect of higher prices brought on by US President Donald Trump's sweeping global tariffs and Beijing's retaliatory levies is prompting customers to fall back on cheaper, older processors, reports Reuters.
"In client, we are seeing strong demand on older-gen parts and in data center as well," the chief executive of Intel's products unit, Michelle Johnston Holthaus, said during a call after Intel posted results. She was referring to units that provide chips for personal computers and servers.
"Macroeconomic concerns and tariffs have everybody hedging their bets," she added.
The Santa Clara, California-based company delivered a dour forecast for the June quarter but handily beat Wall Street estimates for first-quarter sales as customers stockpiled chips in anticipation of steep tariffs.
While Trump has for now exempted chips from tariffs, a major hit to Intel could come from China's retaliatory tariffs on US imports, with chips manufactured in the US set to face levies of 85 percent or higher, based on the state-backed China Semiconductor Industry Association's (CSIA) notice earlier in April.
Intel's finance chief David Zinsner sounded alarm bells around the macroeconomic environment stemming from trade tensions.
"The very fluid trade policies in the US and beyond, as well as regulatory risks, have increased the chance of an economic slowdown with the probability of a recession growing," Zinsner said. "We will certainly see costs increase."
Higher tariffs could dampen a recovery in the PC market for the remainder of the year, possibly hurting Intel, which is banking on on-device artificial intelligence features and a new Microsoft Windows cycle to revive demand in its most important market, investors and analysts said.
"Demand for older-generation chips is a flashing macro signal," said Michael Ashley Schulman, chief investment officer at Running Point Capital.
"In a shaky economic climate, 'good enough' beats bleeding edge."
Clients relying on older processors could also muddy the outlook for a slew of new Intel PC chips catered towards AI-enabled PCs.
The lower prices for older chips are impacting Intel's bottom line and will likely slow the adoption of more advanced chips for AI PCs, Bob O'Donnell, chief analyst at Technalysis Research, told Reuters.
Bd-pratidin English/FNC
