Intel Warns of Recession Risk Amid Tariff Uncertainty

Intel’s recent earnings report and executive commentary paint a bleak picture of the global economy, with CFO David Zinsner explicitly stating that “the probability of a recession” has risen due to “fluid trade policies” and regulatory risks. The company’s first-quarter results, while stable, mask underlying pressures that could derail growth in 2025.

Q1 Revenue Holds Steady, But Concerns Mount
Intel reported $12.7 billion in Q1 revenue, flat year-over-year but at the high end of its guidance. Strength in PC processors (Raptor Lake) and cost improvements for Meteor Lake chips offset some headwinds. However, CFO Zinsner warned that first-quarter demand was inflated by customers “stockpiling ahead of potential tariffs.” This “pre-buying,” while a short-term boost, leaves Intel exposed to a pullback as uncertainty lingers.

The real concern lies in the second-quarter outlook. Intel forecasts revenue between $11.2 billion and $12.4 billion—a 2% to 12% sequential decline—marking a stark reversal from historical trends. Zinsner attributed this contraction to trade policy volatility and macroeconomic risks, including inflation and shifting consumer spending.

Segments Under Pressure
- Data Center & AI: The segment grew 8% YoY to $4.1 billion in Q1 but faces a “faster rate” of decline in Q2. Demand for AI chips, once a bright spot, is cooling as companies delay infrastructure upgrades.
- Client Computing: Revenue dropped 8% YoY to $7.6 billion as OEMs shift to cheaper, older CPUs (e.g., Raptor Lake) to avoid tariff-driven cost increases. Intel’s head of products, Michelle Johnston Holthaus, noted that OEMs are “hedging” by prioritizing N-1/N-2 generation chips, which has constrained supply for newer, higher-margin products.

• Foundry Services: Despite $4.7 billion in Q1 revenue (up 8% sequentially), Intel now expects a sequential decline in Q2 due to delayed customer projects and demand shifts.

Restructuring and Cost Cuts
Intel’s new CEO, Lip-Bu Tan, has launched a restructuring plan to cut $500 million in operating expenses and $2 billion in capital spending. The company aims to streamline decision-making by eliminating management layers and reduce reliance on external foundries. However, Wall Street reacted negatively to the weak Q2 forecast, with shares falling 4.4% after-hours.

The Tariff-Tied Dilemma
The root cause of Intel’s gloomy outlook is U.S. trade policy. While tariffs were initially imposed to “level the playing field” against competitors like China, the uncertainty has backfired. CFO Zinsner emphasized that tariff adjustments require time to optimize supply chains, and the “biggest risk” remains a consumer/business spending pullback.

Panther Lake and the Road Ahead
Intel’s upcoming 18A-based Panther Lake processor, set for a 2025 launch, offers hope. However, its success hinges on macroeconomic conditions. Holthaus acknowledged that “economic conditions at year-end could influence adoption,” especially if a recession dampens demand for premium products. Meanwhile, the CHIPS Act’s future—critical to Intel’s $18 billion 2025 capex plan—remains uncertain, leaving a $3 billion gap in capital spending estimates ($8–$11 billion).

Conclusion: Recession Risks Are Priced In, But Risks Remain
Intel’s warnings underscore a growing consensus: trade policy volatility and inflation are pushing the economy toward a slowdown. With Q2 revenue forecasts down sharply and customer behavior shifting toward cost-cutting, the company’s 2025 challenges reflect broader industry risks.

Investors should note two key metrics:
1. Revenue Decline: The $1.3 billion sequential drop in Q2 guidance (vs. $12.7 billion in Q1) suggests a material slowdown.
2. Margin Pressure: The shift to older CPUs (lower margins) and delayed capex investments could squeeze profitability further.

While Intel’s restructuring aims to offset these headwinds, the path to recovery depends on resolving trade policy uncertainty and avoiding a recession. Until then, the stock—a bellwether for semiconductors—faces a bumpy ride.

In short, Intel’s caution is a red flag for investors. With a recession probability now in play, the question isn’t whether the economy is slowing—it’s how deep the slowdown will cut into corporate profits.