Macroeconomic headwinds have caught up with Intel (INTC -0.11%) based on the semiconductor giant's weaker-than-expected forecast included in its first-quarter 2022 results, released on April 28.

Shares of the company slipped nearly 7% afterthe report as investors were worried about a slowdown in PC (personal computer) demand, especially from the consumer and education segments on account of surging inflation. Coronavirus-related shutdowns in China and the Russia-Ukraine war, meanwhile, are throttling Intel's supply chain and its ability to source components.

Let's take a closer look at Intel's numbers and see why it is too early to write off the company's turnaround.

Intel runs into a weak PC market, but investors shouldn't miss the bigger picture

Intel's first-quarter revenue of $18.4 billion was down 1% over the prior-year period, but the company's bottom line saw a sharper drop as adjusted earnings fell 35% to $0.87 per share. The massive earnings drop was the result of weakness in Intel's client computing group (CCG) segment, where revenue was down 13% to $9.3 billion and operating income crashed 34%.

Intel attributed this decline to weak demand, inventory adjustments by original equipment manufacturers (OEMs) and other factors such as higher investments in product development. The tepid performance of CCG, which is Intel's biggest business as it accounted for half of the company's top line last quarter, wasn't surprising given the conditions prevailing in the PC market.

Man wearing headphones sitting in front of a PC.

Image source: Getty Images

Market research firm IDC estimates that PC shipments, which include desktops, notebooks, and workstations, declined 5.1% in the first quarter of 2022. The PC market has enjoyed two years of solid growth in the wake of the pandemic, and it looks like demand saturation may have finally caught up. Additionally, supply chain disruptions and inflationary pressures are hampering the PC market's growth.

The bad news for Intel is that the PC market may not be witnessing the impressive growth rates of 2020 and 2021 again anytime soon, so Intel's volumes are likely to take a hit. Intel, however, plans to overcome the end-market weakness by winning more share and increasing the average selling price (ASP) of its processors.

Intel Chief Financial Officer David Zinsner said on the company's latest earnings conference call, "CPU ASPs were up greater than 25% year over year on richer mix and strong demand for our high-end mobile and desktop products across both our commercial and consumer segments." That's not surprising given that Intel has been pulling the right strings to stifle Advanced Micro Devices' growth in the processor market. What's more, Intel Chief Executive Officer Pat Gelsinger now believes that the company can regain its manufacturing lead from rivals by the end of 2024 as compared to its original expectation of 2025.

As such, Intel's biggest business could eventually get better, and the good part is that the company is witnessing growth in other areas that could help it mitigate the near-term weakness in the CCG business.

Don't miss these silver linings

Intel's second-quarter projection of $0.70 per share in adjusted earnings on revenue of $18 billion is weaker than what analysts were looking for. Wall Street anticipated $0.83 per share in earnings from Intel on $18.4 billion in revenue. But what's worth noting is that Intel has reiterated its full-year forecast despite the challenges it is facing right now.

The company has reaffirmed its $76 billion revenue estimate for 2022, pointing out that the strength in the data center and networking markets will help it hit its targets this year despite the weakness in PCs. Intel generated $6 billion in revenue from the data center and artificial intelligence (DCAI) business last quarter, up 22% year over year.

Intel expects this segment to improve as the year progresses thanks to the ramp-up of the Sapphire Rapids server processors. The chip giant has started shipping its Sapphire Rapids chips to select customers and says that more models of the same will hit the market throughout the year.

It is also worth noting that the DCAI segment serves a fast-growing market and is on track to take advantage of an increase in chip demand from hyperscale and enterprise customers. The hyperscale data center market, for instance, is expected to clock nearly 26% annual growth through the end of the decade, according to a third-party estimate. So, there are ways for Intel to overcome the PC market's softness and hit its 2022 targets.

That's why it would be too early to write off a potential turnaround at Intel, especially considering that its emerging businesses such as accelerated computing systems and graphics (AXG) are showing signs of stepping on the gas. Intel's AXG revenue was up 21% year over year in the first quarter to $219 million. Though this is a small part of Intel right now, the AXG business can turn out to be a key growth driver in the long run.

So, savvy investors should look past Intel's short-term troubles as the silver linings indicate that this semiconductor giant can regain its mojo in the long run.