Following an unprecedented boom during the pandemic as consumers and businesses snapped up PCs, the bottom fell out of the PC market last year. Global PC unit shipments plunged 16.2% in 2022, according to Gartner. The beginning of this year has been no better. Shipments crashed 30% year over year in the first quarter.
There have been two problems plaguing the PC market. First, demand has declined. PC upgrades that would have been occurring now were pulled forward by the pandemic. People who frantically bought a new laptop in 2020 because they were working from home have little incentive to upgrade now.
Second, this drop in demand created a surplus in inventories, both PCs and some components. Intel (INTC 1.28%) and rival Advanced Micro Devices have been selling PC CPUs at a rate well below end-market demand in recent quarters because customers have prioritized working through existing inventories of chips.
A light at the end of the tunnel
While the PC downturn has dragged on for the better part of a year, the first signs of a recovery are starting to emerge. Global shipments dropped 16.6% year over year in the second quarter, a marked improvement over the first quarter and an indication that the market has bottomed out.
Intel's second-quarter results paint a similar picture. The company reported a year-over-year revenue decline of 12% in its client computing group, compared to a 38% decline in the first quarter. The segment also boosted profits. On revenue of $6.8 billion, client computing produced an operating income of about $1 billion.
Notably, sales of desktop processors increased slightly year over year. Intel retook the performance crown in the desktop CPU market from AMD with its latest Raptor Lake chips, and that achievement appears to be showing up in the numbers. Sales of notebook CPUs were down significantly, more than offsetting higher desktop CPU sales.
Intel believes that inventory levels among PC manufacturers are now at healthy levels after a multi-quarter inventory correction. This sets the company up for a solid recovery in the second half of the year as PC CPU sales more closely mirror actual end-market demand. Intel is also gaining market share, not surprising given that AMD has been reporting far steeper declines in PC CPU sales. If Intel can keep up these market share gains, its client segment can outperform the broader PC market.
An aggressive roadmap
Intel's Raptor Lake chips have driven the company's market share gains, and it's not going to let up on the gas anytime soon. Next-gen Meteor Lake chips are set to launch by the end of the year, the first PC CPUs from Intel that feature a tile-based architecture. This will allow Intel to use different manufacturing processes across a single CPU.
Next year, Intel plans to launch both Arrow Lake and Lunar Lake processors. While the Meteor Lake family may be constrained to notebook CPUs, Intel's 2024 launch slate will bring new high-end desktop chips to market. Production of Meteor Lake chips is ramping up for a launch this year, while the first stepping of Arrow Lake is running through Intel's factories.
Intel's success in the PC market hinges on its ability to regain the manufacturing lead third-party foundry and AMD manufacturing partner TSMC. The company is on track to do exactly that by 2025. The Intel 4 process, which will be used by Meteor Lake, is ready now, while Intel 3 is on track and meeting milestones. The Intel 18A process, which the company expects to beat the competition in terms of performance per watt, is on schedule for launch in the second half of 2024. Lunar Lake is set to use the Intel 18A process.
Intel's aggressive launch schedule should be lined up with an improving PC market. The company has navigated through the worst PC market in history, and now it's well positioned to win back market share in the PC CPU market.
