Intel’s Q2-2024 Financials Launched; $10B Cost Cut Plan Announced, Shares Plummet 20%+

Intel Corporation, one of the giants in the tech industry, recently released its financial results for the second quarter of 2024. And let’s just say, it wasn’t the news they were hoping for. The company’s CEO, Pat Gelsinger, expressed his disappointment, despite reaching important milestones in product and process technology. He acknowledged that the second half of the year would be more challenging than anticipated but remained optimistic about Intel’s future.

So, what exactly went wrong? Well, according to Intel’s CFO, David Zinsner, there were a few factors at play. The accelerated ramp of their AI PC product caused some gross margin headwinds. They also faced higher charges related to non-core businesses and had to deal with the impact of unused capacity. But fear not, Intel has a plan to turn things around.

To create a sustainable financial engine that drives profitable growth, Intel is implementing a series of initiatives. These initiatives include realigning the company’s structure and operations, reducing headcount, and cutting operating expenses and capital expenditures by over $10 billion in 2025. The goal is to achieve a sustainable business model that supports Intel’s long-term strategy.

So, let’s break down these initiatives. First, Intel plans to streamline its operations and significantly reduce spending and headcount. They aim to bring down their non-GAAP R&D and marketing, general and administrative (MG&A) expenses to approximately $20 billion in 2024 and around $17.5 billion in 2025. And they’re not stopping there – further reductions are expected in 2026. It’s estimated that Intel will reduce its headcount by more than 15%, with most of the cuts happening by the end of 2024.

Next up, Intel is focusing on capital efficiency. With their historic five-nodes-in-four-years journey coming to an end, they’re shifting their attention to aligning their investment levels with market requirements. This means reducing gross capital expenditures by over 20% in 2024, bringing it down to between $25 billion and $27 billion. The company expects net capital spending in 2024 to be between $11 billion and $13 billion. In 2025, they’re targeting gross capital expenditures of $20 billion to $23 billion, with net capital spending between $12 billion and $14 billion.

Intel also has plans to reduce the cost of sales by generating $1 billion in savings in non-variable cost of sales by 2025. While product mix might be a challenge, they’re confident that improvements to gross margin will be seen in 2025.

Lastly, Intel is committed to maintaining its core investments to execute its strategy. The company continues to focus on innovation and leadership in process technology and products. They’re also investing in building a resilient and sustainable semiconductor supply chain both in the United States and around the world.

To support these initiatives, Intel is suspending its dividend starting in the fourth quarter. The company recognizes the importance of prioritizing liquidity to fund the necessary investments for its strategy. However, they remain committed to a competitive dividend in the long term.

Now, let’s take a look at how Intel’s business units are faring. In the AI PC category, Intel is leading the way, having shipped over 15 million AI PCs since December 2023. That’s more than all of their competitors combined! And they’re not slowing down – they’re on track to ship over 40 million AI PCs by the end of the year. The company’s next-generation AI CPU, Lunar Lake, achieved production release ahead of schedule in July 2024. It will power over 80 new Copilot+ PCs across more than 20 OEMs.

In the data center space, Intel’s Xeon processors continue to dominate, with over 130 million powering data centers worldwide. They recently introduced the next-generation Intel Xeon 6 processor with Efficient-cores (E-Cores), designed for high-density, scale-out workloads. The Intel Gaudi 3 AI accelerator is also set to launch in the third quarter, promising double the performance per dollar compared to the competition.

And let’s not forget about Intel’s Foundry business. They’re nearing the completion of their ambitious five-nodes-in-four-years strategy, with Intel 18A on track to be manufacturing-ready by the end of this year. They’ve also announced partnerships with Ansys, Cadence, Siemens, and Synopsys to support their embedded multi-die interconnect bridge (EMIB) advanced packaging technology. This technology simplifies the design process and offers flexibility. Intel 18A products, like Panther Lake for clients and Clearwater Forest for servers, are set to launch in 2025.

In conclusion, Intel is facing some challenges, but they’re not backing down. They have a clear plan in place to improve their financial performance, reduce expenses, and strengthen their balance sheet. With a focus on innovation and strategic investments, Intel is determined to come out on top. It’s an exciting time for the company as they continue to push the boundaries of technology and shape the future of the industry.

Background Information

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About Intel:

Intel Corporation, a global technology leader, is for its semiconductor innovations that power computing and communication devices worldwide. As a pioneer in microprocessor technology, Intel has left an indelible mark on the evolution of computing with its processors that drive everything from PCs to data centers and beyond. With a history of advancements, Intel's relentless pursuit of innovation continues to shape the digital landscape, offering solutions that empower businesses and individuals to achieve new levels of productivity and connectivity.

  

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About Synopsys:

Synopsys is a important American software company that specializes in electronic design automation (EDA) and semiconductor intellectual property. Founded in 1986, Synopsys provides tools and solutions for designing and testing complex integrated circuits and electronic systems. Their software aids in the development of semiconductors, electronic products, and software applications, playing a crucial role in advancing technological innovation across various industries. For more detailed information about their products and contributions, you can visit their official website at

  

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Technology Explained

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CPU: The Central Processing Unit (CPU) is the brain of a computer, responsible for executing instructions and performing calculations. It is the most important component of a computer system, as it is responsible for controlling all other components. CPUs are used in a wide range of applications, from desktop computers to mobile devices, gaming consoles, and even supercomputers. CPUs are used to process data, execute instructions, and control the flow of information within a computer system. They are also used to control the input and output of data, as well as to store and retrieve data from memory. CPUs are essential for the functioning of any computer system, and their applications in the computer industry are vast.

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E-Cores: E-Cores (Efficiency Cores) are a type of technology used in the computer industry to provide a more efficient and reliable way of powering and cooling computer components. They are made up of a combination of copper and aluminum, and are designed to be more efficient than traditional copper cores. E-Cores are used in a variety of applications, such as in CPUs, GPUs, and other computer components. They are also used in servers, laptops, and other electronic devices. The technology is designed to reduce heat and power consumption, while also providing a more reliable and efficient way of powering and cooling computer components.

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Foundry: A foundry is a dedicated manufacturing facility focused on producing semiconductor components like integrated circuits (ICs) for external clients. These foundries are pivotal in the semiconductor industry, providing diverse manufacturing processes and technologies to create chips based on designs from fabless semiconductor firms or other customers. This setup empowers companies to concentrate on innovative design without needing substantial investments in manufacturing infrastructure. Some well-known foundries include TSMC (Taiwan Semiconductor Manufacturing Company), Samsung Foundry, GlobalFoundries, and UMC (United Microelectronics Corporation).

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Xeon: The Intel Xeon processor is a powerful and reliable processor used in many computer systems. It is a multi-core processor that is designed to handle multiple tasks simultaneously. It is used in servers, workstations, and high-end desktop computers. It is also used in many embedded systems, such as routers and switches. The Xeon processor is known for its high performance and scalability, making it a popular choice for many computer applications. It is also used in many cloud computing applications, as it is capable of handling large amounts of data and providing high levels of performance. The Xeon processor is also used in many scientific and engineering applications, as it is capable of handling complex calculations and simulations.

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