Intel’s Struggle Amid AI Boom

by

Intel (INTC) has changed its messenger, but the message remains unchanged.

Following the departure of CEO Pat Gelsinger and the appointment of Lip-Bu Tan, the former CEO of Cadence Design Systems, the legacy chipmaker reported yet another disappointing quarter last week. This was Tan’s first full quarter at the helm, and the stock responded with an 8.5% drop.

Revenue for the quarter was stagnant at $12.9 billion, though it surpassed the consensus estimate of $11.9 billion. The PC-focused Client Computing Group saw a 3% decline to $7.9 billion, while Data Center and AI grew modestly by 4% to $3.9 billion. Foundry, another core business, reported a 3% increase to $4.4 billion. Some segments overlap, leading to $4.4 billion in intersegment eliminations.

In April, Intel announced a goal to cut 20% of its workforce. By last week, it had achieved a 15% reduction and aims to trim non-GAAP operating expenses to $17 billion for the year.

However, these cost cuts failed to salvage the bottom line as gross margin fell sharply from 38.7% to 29.7%. This decline was driven by an $800 million non-cash impairment for accelerated depreciation and $200 million in one-time costs. Without these charges, the gross margin would have dropped by only 100 basis points.

Intel reported an adjusted loss per share of $0.10, down from $0.02 a year ago and below the expected $0.01 per share. Excluding the impairment, the company would have posted an adjusted profit of $0.10 per share.

Intel Scales Back Its Ambitions

A recurring theme in the report was the need to right-size the business to meet demand rather than investing ahead of it. Tan encapsulated this strategy on the earnings call, stating, “I do not subscribe to the belief that, ‘If you build it, they will come.’ Under my leadership, we will build what customers need, when they need it, and earn their trust through consistent execution.”

In line with this thinking, Intel plans to reduce capital expenditures to $18 billion for the year. This involves abandoning projects in Germany and Poland, consolidating assembly and test operations in Costa Rica into larger sites in Vietnam and Malaysia, and slowing construction at a new foundry in Ohio to align spending with demand.

Due to a pull-forward effect from tariff fears, Intel anticipates that the second half of the year will fall below seasonal levels. Its third-quarter guidance projects revenue of $12.6 billion to $13.6 billion, a slight decline at the midpoint, with break-even EPS.

Intel’s 18A process is perhaps its most consequential project, with bulls hoping it will drive profitability in the foundry unit, attract third-party customers, and make Intel competitive with TSMC. The quarter marked a key milestone as Intel began production wafers at its Arizona plant. Tan emphasized that 18A is foundational for the next three generations of Intel client and server products, and the company is committed to fully scaling the technology.

Loading widget...

Can Intel Turn It Around?

While Tan deserves time to execute a turnaround, Intel’s struggles are magnified when compared to its peers.

Virtually every semiconductor stock is thriving in the current AI boom, arguably the sector’s biggest windfall since the dot-com era.

Intel, however, is not only unable to grow but is stagnating at a time when demand for AI-related products is soaring. Peers like Nvidia, AMD, and Micron are experiencing robust growth, and even legacy tech companies like IBM and Oracle have seen their stocks surge on excitement for their AI offerings.

Intel faces myriad challenges and has yet to turn a profit. While a single success could rewrite the narrative, it remains elusive. A downturn in the industry would further set back any hopes of a turnaround.

For now, Intel needs to demonstrate evidence of progress before it becomes an investable proposition. Yet, the frothiness in the chip sector and the broader market offers some upside if the company can take the first step toward recovery. 🌱

Read More

2025-07-30 11:36