The News: Intel Corporation’s Q2 2024 earnings report highlights a significant strategic shift to enhance efficiency and market competitiveness. The company announced a $10 billion cost-reduction plan, which includes a more than 15% reduction in headcount and the suspension of dividend payments starting in the fourth quarter of 2024. You can read the full press release on Intel’s website.
Intel’s Q2 2024 Earnings Release: Navigating Challenges and Strategic Shifts
Analyst Take: Intel’s Q2 2024 financial results reflect a company navigating a complex landscape of technological advancements, market competition, and internal restructuring. While the revenue and GAAP EPS figures indicate financial headwinds, the strategic initiatives outlined by CEO Pat Gelsinger underscore Intel’s commitment to long-term growth and market leadership.
By the Numbers:
- Revenue: $12.8 billion, down 1% YoY
- GAAP EPS: $(0.38)
- Non-GAAP EPS: $0.02
- Forecasted Q3 2024 Revenue: $12.5 billion to $13.5 billion
- Forecasted Q3 2024 GAAP EPS: $(0.24)
- Forecasted Q3 2024 Non-GAAP EPS: $(0.03)
- Cost-Reduction Plan: $10 billion, including a 15% headcount reduction
- Dividend Suspension: Starting in Q4 2024
Revenue and Earnings Overview
Intel’s revenue of $12.8 billion for Q2 2024 represents a slight decline from last year. This marginal decrease highlights the intense competition and market saturation in the semiconductor industry. The company’s GAAP loss per share of $(0.38) contrasts sharply with the non-GAAP EPS of $0.02, indicating that specific adjustments, such as share-based compensation and restructuring charges, significantly impacted the reported earnings.
Key factors contributing to the revenue and earnings figures include gross margin pressures from the accelerated ramp of AI PC products and higher charges related to non-core businesses. Despite these challenges, Intel’s proactive cost-reduction measures and strategic focus on core investments are poised to stabilize its financial performance in the coming quarters.
Intel’s $10 billion cost-reduction plan is a decisive move aimed at reshaping its financial structure to enhance efficiency and competitiveness. The plan encompasses structural and operating realignment across the company, headcount reductions, and significant operating expenses and capital expenditures cuts. Specifically, Intel aims to reduce non-GAAP R&D and MG&A expenses to approximately $20 billion in 2024 and $17.5 billion in 2025.
The suspension of dividend payments starting in Q4 2024 is a strategic decision to prioritize liquidity and support long-term investments. This move aligns with Intel’s focus on sustaining investments in technology and manufacturing leadership, which are critical to maintaining its competitive edge in the semiconductor industry. For example, Intel is moving its Intel 4 and 3 chip wafers from a plant in Oregon to one in Ireland, which leads to higher costs in the short term but wider gross margin later.
Intel Q2 2024 Earnings: Biting the Bullet and Playing the Long Game
The $10B cost reduction plan is integral to the path forward. This development is not what investors or employees want to hear but righting the ship and returning to growth and profit targets are the critical path forward. Especially with massive capital expenditure (Capex) outlines to expedite its commitments to building out the U.S. foundry business.
These cuts and divesting from businesses/investments that are not returning to expectations are critical activities. The dividend suspension is another necessary casualty but will certainly chase away a subset of yield investors that have stuck with the company for income. The path back here is execution and profitability.
Intel’s product segments showed mixed performance in Q2 2024. The Client Computing Group (CCG) reported revenue of $7.4 billion, up 9% year-over-year, driven by strong demand for AI PCs. In contrast, the Data Center and AI (DCAI) and the Network and Edge (NEX) segment experienced slight revenue declines, reflecting broader market challenges and competitive pressures.
For instance, AMD saw mid double-digit growth in client and triple-digit growth in datacenter. We see the strength in Arm and of course NVIDIA as well. With the strength of the market and competition it must be blocking and tackling for Intel for the next several quarters (i.e., 12-24 months).
Intel’s product number suggests that Meteor Lake may have underperformed in the throughput or yield areas, linking to gross margin decline. As a result, here are goals we find that Intel needs to fulfill on the horizon to energize its overall competitiveness:
- AI PC must succeed (i.e., Lunar Lake/Arrow Lake)
- Gaudi 3 must land across the data center market segment
- Margins have to return to the model commitment
- Foundries have to come online and show the ability to profit with the model as well
It’s a long road ahead. Achievable, but more difficult with every miss. In sum, Intel’s Q2 2024 earnings are not representative of or sufficient to get the company where it needs to be. The global tech ecosystem needs a strong Intel Corporation.
Where are the Silver Linings
Intel spotlighted the attainment of key technological milestones, such as the 1.0 Process Design Kit (PDK) release for Intel 18A and the power-on of the first client and server products on Intel 18A, Panther Lake, and Clearwater Forest.
In addition to these initiatives, Intel is focused on driving innovation in its AI and semiconductor capabilities. The company’s AI PC category has grown, with over 15 million AI PCs shipped since December 2023. The next-generation AI CPU, Lunar Lake, is set to ship in the third quarter of 2024, which holds the potential to boost Intel’s position in AI-driven computing solutions. These strategic moves and technological advancements are intended to enable Intel to propel long-term growth and broader market influence.
Intel has successfully landed nearly $20 billion in grants and loans to help build factories in Ohio, Arizona, and New Mexico, the lead beneficiary of the US federal government’s CHIPS and Science Act funding. Factor in the $10B in cost reduction plan, elimination of dividends, investment contributions from partners on the foundry side and on a good faith estimate basis Intel can have up to $40B in incremental cash over the two years. This provides the financial foundation for Intel to see through its 5N4Y vision and demonstrate the long-term benefits from its foundry strategy.
Intel’s AI Portfolio Innovations Highlighted at Computex 2024
At Computex 2024, Intel showcased advancements in their AI portfolio, underscoring the company’s commitment to integrating AI across various sectors. Central to this vision was introducing the Intel Xeon 6 processors, designed to enhance performance and power efficiency for high-density, scale-out workloads in data centers. These processors leverage Efficient-cores (E-cores), optimized to handle complex AI tasks more efficiently. This move aligns with the increasing demand for robust AI infrastructure. The move aims to solidify Intel’s position in the data center market, providing a scalable solution that addresses current and future AI needs.
Intel introduced the Gaudi 3 AI accelerators, which are aimed at transforming enterprise AI applications. The Gaudi 3 accelerators are designed to deliver breakthrough AI performance, enabling faster training and inference for deep learning models. This innovation is pivotal for industries that rely heavily on AI-driven insights, such as healthcare, finance, and autonomous driving.
Furthermore, Intel’s emphasis on open, scalable systems with the Gaudi 3 accelerators ensures that these solutions can integrate into existing AI ecosystems, promoting interoperability and flexibility. This holistic approach to AI innovation enhances Intel’s competitive edge and accelerates the adoption of AI technologies across various industries.
Technological Milestones and Product Advancements
Despite the financial challenges, Intel attained technological milestones in Q2 2024. The 1.0 Process Design Kit (PDK) release for Intel 18A and the power-on of the first client and server products on Intel 18A, Panther Lake, and Clearwater Forest mark critical steps in Intel’s roadmap to reclaim process technology leadership. These advancements underscore Intel’s commitment to innovation and its strategic vision of leading the AI and semiconductor markets.
Intel’s AI PC category continued to gain traction, with over 15 million AI PCs shipped since December 2023. The introduction of the next-generation AI CPU, Lunar Lake, ahead of schedule, and the upcoming shipments in Q3 2024 could further bolster Intel’s position in the AI PC market. These product advancements are crucial for Intel to capture mind share and expand its influence in the fast-emerging AI PC category.
Intel’s internal foundry model, which became operational in Q1 2024, is a key component of its strategy to enhance transparency, accountability, and efficiency. The model distinguishes between Intel Products and Intel Foundry, enabling more focused management and operational improvements. This strategic shift is expected to drive long-term value and market competitiveness.
Strategic Priorities and Technological Advancements
Intel’s strategic priorities for the coming quarters focus on reducing operating expenses, capital expenditures, and cost of sales. The company aims to streamline operations, cut spending, and achieve a more sustainable financial model. By reducing non-GAAP R&D and MG&A expenses to approximately $20 billion in 2024 and further to $17.5 billion in 2025, Intel is positioning itself for long-term profitability and market competitiveness.
As noted previously, another critical aspect of Intel’s strategy is the reduction in CepEx, which is aligned with market requirements. With gross capital expenditures targeted at $25 billion to $27 billion in 2024 and $20 billion to $23 billion in 2025, Intel focuses on capital efficiency and strategic investments that drive growth and innovation.
Intel’s continued investment in process technology and product innovation will yield significant benefits in the coming years. The launch of Intel 18A products, Panther Lake and Clearwater Forest, in 2025 represents a pivotal moment in Intel’s journey to regain process technology leadership. These products, leveraging RibbonFet, PowerVia, and advanced packaging technologies, are poised to set new benchmarks in the semiconductor industry.
The expansion of Intel’s AI PC portfolio, with over 40 million AI PCs expected to be shipped by the end of 2024, highlights the company’s strategic focus on AI-driven growth. The introduction of Lunar Lake and the upcoming launches of Intel® Xeon® 6 processors and Intel® Gaudi® 3 AI accelerator further strengthen Intel’s position in the AI and data center markets.
Financial Outlook
Intel’s financial outlook for Q3 2024 includes a revenue range of $12.5 billion to $13.5 billion, with a GAAP EPS of $(0.24) and a non-GAAP EPS of $(0.03). These projections reflect the ongoing challenges and the impact of strategic cost-reduction measures. However, the company’s focus on operational efficiency, technological innovation, and strategic investments is expected to drive long-term shareholder value.
The suspension of dividend payments starting in Q4 2024 is a prudent move to ensure sufficient liquidity for strategic investments. Intel remains committed to reinstating a competitive dividend as cash flows improve and the company achieves its financial and strategic objectives.
Key Takeaways
Overall, we believe Intel has a long road ahead that is achievable, but more difficult with every miss. In sum, Intel’s Q2 2024 earnings are not representative of or sufficient to get the company where it needs to be. The global tech ecosystem needs a strong Intel Corporation.
Intel’s Q2 2024 earnings release highlights significant challenges and strategic shifts. The company’s proactive measures, including a comprehensive cost-reduction plan and strategic investments in technology and innovation, aim to navigate these challenges and position Intel for long-term growth and market leadership. As Intel continues to execute its overall transformation plan (e.g., IDM 2.0) and focus on core investments, the company is better positioned to capitalize on future opportunities in the semiconductor and AI markets.
Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discusses Intel’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other Insights from The Futurum Group:
Intel Q1 2024 Results: New Reporting Structure with Top Bottom Beat
Computex 2024: Intel Catalyzes AI Everywhere with Key AI Portfolio Innovations
Intel Vision 2024: Intel Unleashes Gaudi 3 Led Enterprise AI Strategy
Author Information
Ron is an experienced, customer-focused research expert and analyst, with over 20 years of experience in the digital and IT transformation markets, working with businesses to drive consistent revenue and sales growth.
He is a recognized authority at tracking the evolution of and identifying the key disruptive trends within the service enablement ecosystem, including a wide range of topics across software and services, infrastructure, 5G communications, Internet of Things (IoT), Artificial Intelligence (AI), analytics, security, cloud computing, revenue management, and regulatory issues.
Prior to his work with The Futurum Group, Ron worked with GlobalData Technology creating syndicated and custom research across a wide variety of technical fields. His work with Current Analysis focused on the broadband and service provider infrastructure markets.
Ron holds a Master of Arts in Public Policy from University of Nevada — Las Vegas and a Bachelor of Arts in political science/government from William and Mary.
