Intel (INTC) Q2 earnings report 2024

Intel shares slid as much as 20% in extended trading on Thursday after the chipmaker said it would lay off over 15% of its employees as part of a $10 billion cost-reduction plan and reported lighter results than analysts had envisioned.

The company also said that it will not pay its dividend in the fiscal fourth quarter of 2024 and that it will lower full-year capital expenditures by over 20%.

Here’s how the company did, compared to LSEG analyst estimates:

• Earnings per share: 2 cents adjusted vs. 10 cents expected
• Revenue: $12.83 billion vs. $12.94 billion expected

Intel’s revenue declined 1% year over year in the fiscal second quarter, which ended on June 29, according to a statement. The company swung to a $1.61 billion net loss, or 38 cents per share, from net income of $1.48 billion, or 35 cents per share, in the year-earlier period.

A decision to more rapidly produce Core Ultra PC chips that can handle artificial intelligence workloads contributed to the loss, CEO Pat Gelsinger said on a conference call with analysts.

“We previously signaled that our investments to be fine and drive the AI PC category would pressure margins in the near-term,” Gelsinger said. “We believe the trade-offs are worth it. The AI PC will grow from less than 10% of the market today to greater than 50% in 2026.”

Additionally, Intel decided to more quickly move Intel 4 and 3 chip wafers from a plant in Oregon to one in Ireland, which will lead to higher costs in the short term but a wider gross margin later, said Dave Zinsser, the company’s finance chief.

Plus, pricing was more competitive than planned during the quarter, Zinsser said. AMD, Qualcomm and other companies have been working to take market share from Intel.

Intel’s Client Computing Group that makes PC chips contributed $7.41 billion in revenue, up 9% and right around the $7.42 billion consensus among analysts surveyed by StreetAccount. The company said results tied to AI-friendly PC chips exceeded internal expectations and were on a path for over 40 million unit shipments in 2024.

The Data Center and AI unit posted $3.05 billion in revenue. The result was down 3% and lower than the $3.14 billion StreetAccount consensus.

For the fiscal third quarter, Intel called for an adjusted net loss of 3 cents per share on $12.5 billion to $13.5 billion in revenue. That implies

LSEG analysts expected adjusted net earnings of 31 cents per share on $14.35 billion in revenue. Zinsser said data center revenue should grow sequentially in the second half of the fiscal year, “as demand for traditional servers improves modestly.”

But he said consume and commercial spending has weakened, particularly in China, and a continued emphasis on cloud-based servers for AI have led to Intel to reduce its 2024 total addressable market.

During the fiscal second quarter, Intel announced that Apollo would invest $11 billion in a joint venture around a chip manufacturing plant in Ireland. The company also introduced Xeon 6 server processors, along with a Gaudi 3 accelerator for AI tasks.

In addition, Intel disclosed in May that the U.S. Commerce Department was revoking export licenses for consumer items to a customer in China, widely believed to be Huawei. Intel said fiscal second-quarter revenue would still be in its previously announced range of $12.5 billion to $13.5 billion, but below the middle of the range. Thursday’s outcome did line up with that update.

The jobs reduction, which will affect about 15,000 employees, will mainly take place this year, Gelsinger wrote in a memo. It’s the largest of any single job cut listed on Layoffs.fyi, an industry tracker that’s been operating since March 2020.

“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” he wrote. “Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low.” 

On an adjusted basis, Intel said it expects around $20 billion in cuts this year, $17.5 billion in 2025 and more in 2026.

Prior to the after-hours drop, Intel stock had lost 42% of its value so far this year, while the S&P 500 index was up almost 14% in the same period.

Now Intel is looking ahead. It has relied on Taiwan’s TSMC to make AI-compatible Lunar Lake PC chips, which reached a production release last month. The next step is to launch the next-generation Panther Lake based on its own manufacturing pipeline, and that will yield a better cost structure, Zinsser said.

“Clearly, as a lot of tiles externally in ’25, we bring those home in ’26,” Gelsinger said. “That’s when we’ll start to really, as Dave said, see the benefits of the model that we’ve put in place. Tiles coming home, leadership process technology, leadership products, starts in ’25, deliver big time in ’26 and beyond.”

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