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01/09 23:04
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call provided mixed signals: while Intel showed positive signs in product revenue and strategic focus on AI, concerns remain over declining gross margins, competitive pressures in server ASPs, and unclear responses in the Q&A. The guidance suggests a sequential revenue decline, and CapEx is set to decrease, reflecting cost management. Despite some positive elements, like strong AI strategy and customer engagement, the lack of clarity in certain areas and expected revenue decline balance the sentiment to neutral.
Revenue Second quarter revenue was $12.9 billion, coming in above the high end of our guidance range, driven by strength across client and data center. This reflects strong demand across our business and good execution by the team. Similar to comments made in Q4 and Q1, it is likely Q2 revenue benefited from customer purchasing behavior to mitigate tariff uncertainty, although it continues to be difficult to quantify.
Non-GAAP Gross Margin Q2 non-GAAP gross margin was 29.7%, impacted by approximately $800 million of noncash impairment and accelerated depreciation charges related to excess prior generation tools and approximately $200 million of onetime period costs. Excluding these charges, the non-GAAP gross margin would have been 37.5%, ahead of the Q2 guidance of 36.5%.
Non-GAAP EPS Q2 non-GAAP EPS was minus $0.10, impacted by the same charges affecting gross margin. Excluding these charges, non-GAAP EPS would have been $0.10, ahead of the Q2 guidance of breakeven.
Operating Cash Flow Q2 operating cash flow was $2.1 billion, with gross CapEx of $4.5 billion and net CapEx of $3.1 billion, resulting in adjusted free cash flow of negative $1.1 billion. This reflects ongoing efforts to manage capital spending and improve cash flow.
Intel Products Revenue Intel Products revenue was $11.8 billion, up slightly sequentially and above expectations across client and server. This was supported by continued PC refresh demand and upside in edge deployments.
Intel Foundry Revenue Intel Foundry delivered revenue of $4.4 billion, down 5% sequentially but above expectations due to better-than-forecasted output of Intel 7 wafers and increased advanced packaging services.
All Other Revenue Revenue from All Other was $1.1 billion, up 12% sequentially and above expectations. This category includes Mobileye, Altera, and IMS, collectively delivering $69 million of operating profit.
Panther Lake SKU: Intel plans to deliver its first Panther Lake SKU by year-end 2025, followed by additional SKUs in the first half of 2026. This launch aims to solidify Intel's strong share in the notebook market.
Nova Lake: Intel is making progress on Nova Lake, which is due out at the end of 2026, to address gaps in the high-end desktop market.
AI PCs: Intel launched AI PCs with key OEM partners and expanded its Arc GPUs for AI use cases tailored to inference and professional workstations.
Foundry Strategy: Intel is transforming its semiconductor manufacturing into a robust foundry business. It will focus on delivering wafers on time, building capacity based on demand, and consolidating operations in Vietnam and Malaysia while slowing construction in Ohio.
AI Market: Intel is concentrating on areas like inference and agentic AI, aiming to disrupt and differentiate in the AI market.
Restructuring and Efficiency: Intel reduced management layers by 50% and completed actions to achieve a year-end target of 75,000 employees. It aims to simplify operations and improve accountability.
Capital Spending: Intel reduced its CapEx guidance by $5 billion year-to-date and plans further reductions in 2026.
AI Strategy: Intel is shifting from a traditional silicon-centric approach to a full-stack AI solution, focusing on software, systems, and silicon to address emerging AI workloads.
Core x86 Franchise: Intel is focusing on clean and simple architecture, better cost structure, and robust product margins for its x86 products.
Organizational Restructuring: The company is undergoing significant restructuring, including reducing management layers by 50% and cutting down to 75,000 employees by year-end. These actions, while aimed at reducing inefficiencies, could disrupt operations and morale in the short term.
Foundry Strategy Challenges: The foundry business requires building trust with customers, delivering wafers on time, and ensuring high quality and reliability. Past excessive capacity investments have led to a fragmented factory footprint, and the company is now scaling back projects in Germany, Poland, and Ohio, which could impact future growth.
Economic and Regulatory Risks: The company faces uncertainties from shifting trade policies, persistent inflation, and increased regulatory risks, which could affect demand and operational costs.
AI and Technology Development: Intel's AI strategy is in its early stages, with a need to build cohesive silicon systems and software stacks. This lack of maturity in AI capabilities could hinder competitiveness in the evolving AI market.
Capital Allocation and Financial Discipline: The company has faced challenges in generating positive adjusted free cash flow since 2021. Excessive past capital expenditures and restructuring costs are straining financial resources, requiring stringent capital allocation going forward.
Competitive Pressures in Core Markets: Intel is facing gaps in the high-end desktop market and broader hyperscale workloads in servers. These gaps, coupled with the need for improved performance per watt and multi-threading capabilities, could impact market share.
Supply Chain and Capacity Constraints: Capacity for Intel 7 remains tight, and there are constraints in advanced packaging services, which could limit the ability to meet customer demand in the short term.
Revenue Expectations: For Q3 2025, Intel forecasts revenue in the range of $12.6 billion to $13.6 billion, representing a sequential change of -2% to +6%. The midpoint of $13.1 billion reflects a cautious outlook due to potential customer hedging against tariff uncertainty.
Gross Margin: Intel expects a gross margin of approximately 36% for Q3 2025, influenced by an increased mix of outsourced products, the early ramp of Panther Lake, and tariff-related costs.
Operating Expenses: Intel targets operating expenses of $17 billion for 2025 and $16 billion for 2026, reflecting ongoing cost reduction efforts.
Capital Expenditures: Intel anticipates gross capital investment of approximately $18 billion for 2025, with net CapEx forecasted between $8 billion and $11 billion. Improved utilization of construction in progress is expected to lower gross and net CapEx in 2026.
Product Launches: Intel plans to launch its first Panther Lake SKU by the end of 2025, with additional SKUs in the first half of 2026. Nova Lake is expected to launch at the end of 2026.
Foundry Strategy: Intel will grow capacity based on volume commitments and deploy CapEx in alignment with tangible milestones. The company will not continue manufacturing projects in Germany and Poland, consolidate operations in Costa Rica, and slow construction in Ohio to align with market demand.
Process Technology Development: Intel 18A technology is on track for production wafers in Arizona, with Panther Lake expected to launch in Q4 2025. Intel 14A is being developed as a foundry node with input from large external customers and internal teams.
AI Strategy: Intel aims to become the compute platform of choice for AI, focusing on inference and agentic AI. The company plans to develop a cohesive silicon, systems, and software stack to address emerging AI workloads.
Balance Sheet and Cash Flow: Intel aims to begin deleveraging its balance sheet in 2025. The company has already reduced CapEx guidance by $5 billion year-to-date and plans further reductions in 2026.
Dividend Program: No specific mention of a dividend program or changes to existing dividend policies was made during the call.
Share Buyback Program: No specific mention of a share buyback program or changes to existing share repurchase policies was made during the call.
The earnings call summary and Q&A session reveal several concerns: Intel's cautious revenue outlook, margin pressures from product transitions, supply constraints, and lack of specific guidance on key projects like Diamond Rapids and Coral Rapids. Despite some positive developments in AI and partnerships, the lack of clear timelines and yield improvements, along with uncertainties in gross margins and CapEx, suggest a negative sentiment. The absence of guidance for 2026, coupled with margin and supply chain challenges, outweighs the positive aspects, leading to a predicted stock price decline of -2% to -8%.
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