Intel (INTC, Financial) reported a disappointing Q2, missing both EPS and revenue targets. The company also provided bleak Q3 guidance, announced a 15% workforce reduction, slashed its 2024 capex projections by over 20%, and suspended its quarterly dividend. As a result, INTC stock has plunged to its lowest levels since spring 2013.
The return to a year-over-year sales decline and the collapse of INTC's gross margin highlight the company's struggles:
- In 4Q23, INTC saw nearly 10% top-line growth, breaking a streak of seven consecutive quarters of year-over-year sales declines. This recovery was mainly driven by a rebound in the PC market, sparking hopes for a turnaround. However, Q2 revenue fell by nearly 1% to $12.8 billion, erasing those gains.
- While NVIDIA (NVDA, Financial) has thrived during the AI boom, INTC has lagged significantly. Revenue in INTC's Data Center and AI (DCAI) segment decreased by 3% to $3.0 billion, compared to a 115% year-over-year surge for Advanced Micro Devices (AMD, Financial) in its Data Center segment.
- CEO Pat Gelsinger previously suggested that Q1 was the bottom for the traditional data center business, but this proved incorrect. Gelsinger noted that the economic outlook has worsened more than anticipated, and INTC continues to lose market share to AMD and NVDA.
- In the PC-centric Client Computing Group (CCG) segment, revenue increased by 9% to $7.4 billion. However, this growth is overshadowed by a steep drop in INTC's non-GAAP gross margin to 38.7% from 45.1% last quarter, missing the guidance of 43.5%. CFO David Zinsner attributed this to expenses tied to AI-enabled PC chip production. INTC forecasts Q3 gross margin to decline slightly to 38.0%.
- The Foundry segment, central to INTC's "IDM 2.0" strategy, saw a modest 4% revenue increase to $4.3 billion, improving from last quarter's 10% year-over-year decrease. INTC's new process technology, 18A, is on track to be manufacturing-ready by year-end, with wafer start volumes beginning in 1H25. However, investors remain skeptical about INTC's ability to compete with Taiwan Semiconductor Manufacturing (TSM, Financial).
In summary, INTC's dismal Q2 report has shaken investor confidence. While restructuring may improve the bottom line, the bigger question remains whether INTC can reclaim its status as a semiconductor giant.
