Intel's Earnings: Analysts Weigh In on the Outlook

Intel Corporation (INTC) is set to report its second-quarter earnings today, and analysts are expressing concern about the company's outlook. As the semiconductor giant grapples with a challenging market environment, investors are eager to see how Intel's financial performance has fared in the face of headwinds.

Intel's revenue growth has been sluggish compared to its competitors and the broader semiconductor industry. In the second quarter of 2024, Intel reported revenue growth of just 1%, while its main competitor, AMD, grew by 12%. The broader semiconductor industry, as represented by the Philadelphia Semiconductor Index, grew by 7% during the same period. This slow growth can be attributed to Intel's struggles in the data center and AI markets, as well as its delayed transition to advanced manufacturing processes.


Intel's gross margin trends are driven by several key factors, including its ability to control costs, optimize its product mix, and maintain pricing power. The company's gross margin has been volatile in recent quarters, with Q2 2024 seeing a decline to 34.5% from 38.0% in Q1 2024. This decrease was primarily due to higher-than-typical charges related to non-core businesses and the impact from unused capacity.


Intel's capital expenditure (CapEx) allocation has shifted in recent years, reflecting the company's strategic focus on regaining process technology leadership and investing in advanced manufacturing capabilities. In 2023, Intel spent $36.9 billion on CapEx, a significant increase from the $26.3 billion spent in 2022. This increase was primarily driven by investments in 7-nanometer (7nm) and 5-nanometer (5nm) process technologies, as well as the expansion of its manufacturing capacity in the United States and Europe.

In 2024, Intel is expected to reduce its gross CapEx by more than 20% from prior projections, bringing gross CapEx in 2024 to between $25 billion and $27 billion. This reduction is part of the company's cost-reduction plan, which aims to improve operating and capital efficiencies while accelerating its IDM 2.0 transformation.


Intel's earnings call today revealed key takeaways about its guidance for the upcoming quarters. The company expects third-quarter revenue of $12.5 billion to $13.5 billion, with GAAP EPS of $(0.24) and non-GAAP EPS of $(0.03). For the full year, Intel anticipates revenue of $54.2 billion and non-GAAP EPS of $1.05. These figures are lower than analysts' expectations of $13.02 billion in revenue and $0.02 in non-GAAP EPS for the third quarter, and $54.2 billion in revenue and $1.09 in non-GAAP EPS for the full year. Intel's guidance reflects the company's ongoing efforts to resize and refocus its business, including a 15% headcount reduction and the suspension of its dividend.


Analysts are concerned about Intel's outlook due to several factors, including its sluggish revenue growth, volatile gross margins, and reduced capital expenditure. However, Intel's strategic initiatives, particularly its focus on process technology leadership and external foundry business growth, are crucial for achieving its financial goals and maintaining capital expenditure efficiency. The company aims to regain process technology leadership by 2025, which will strengthen its market position and improve profitability. Additionally, Intel's external foundry business, Intel Foundry Services (IFS), is expected to contribute significantly to the company's growth and revenue.

In conclusion, Intel's earnings report today will provide valuable insights into the company's financial performance and strategic initiatives. Despite the concerns expressed by analysts, Intel's long-term prospects remain promising, as the company continues to invest in advanced technologies and manufacturing capabilities. Investors should closely monitor Intel's earnings and guidance to assess the company's progress and make informed investment decisions.