Intel's shares fell over 18% to $23.56 in after-hours trading on August 1 after the chipmaker's Q2 earnings missed top and bottom line estimates. The company's overall revenue fell 1% year-over-year (YoY) to $12.8 billion, missing analyst estimates of $12.9 billion.
The chipmaker's Q3 revenue estimates between $12.5 billion and $13.5 billion were again below expectations of $14.3 billion. Intel also suspended dividend payouts starting Q4 until cash flow increased to sustainable levels. However, for Q3, the company announced a dividend of $0.125 per share, payable on September 1. As part of its more than $10 billion cost-cutting plan, an estimated 15%, or over 17,000 employees of Intel's global workforce, would be let go.
Intel Restructuring Amid Stiff Competition
Intel is undergoing a major overhaul as it expands the AI chip and foundry businesses through new global factories and facilities to regain market share lost to rivals such as Advanced Micro Devices (AMD) and Taiwan Semiconductor Manufacturing Company (TSMC). Intel's Data Center and AI business revenue marginally fell short of estimates to $3.05 billion for the quarter, but demand for its CPUs and GPUs to run AI apps remain high. However, demand for Intel's GPUs is lower than Nvidia's, especially for training large-language models.
Intel's largest division, the Client segment, which sells chips for enterprise and personal computers, recorded a YoY growth in revenue to $7.4 billion from $6.7 billion, but below expectations of $7.5 billion. Meanwhile, threats in the PC space also loomed for Intel as smartphone chipmaker Qualcomm recently launched the Snapdragon X Elite PC chip as part of Microsoft's new Surface Laptop. Intel shares are down over 40% year-to-date (YTD) compared to AMD's 10%, while Nvidia shares have climbed 120% this year.
Huge Revenue Potential From AI Chip and Foundry Business
Intel has shipped over 15 million AI PCs since December 2023 and expects to wrap up the year with over 40 million deliveries as it continues to shape the AI PC space. It also highlighted that over 130 million Intel Xeon processors power data centres worldwide while announcing AI-powered Ethernet solutions, including foundry chiplets scheduled for rollout next year.
Intel is also opening its foundries to third-party chip designers, hoping to rival TSMC in business. Senior management also strengthened the leadership by appointing industry veterans Kevin O-Buckley and Naga Chandrasekaran to steer the company's foundry division.
Intel CFO David Zinsner attributed the disappointing Q2 margins primarily to the accelerated AI PC product ramp and restructuring in non-core businesses. He expects the cost-cutting measures to strengthen its balance sheet, reduce debt, and enhance liquidity.
Signs Of Weakness In The Tech Sector
Cracks began to emerge in the record years-long market rally led by mega-cap tech companies when Nvidia shares fell for a short span in June, wiping out $400 billion in company market value. The AI giant's stock price tanked over 6% yesterday, and the US Department of Justice said it is investigating Nvidia's takeover of AI startup Run: AI on antitrust grounds.
Furthermore, the chip sector witnessed a selloff amid signs of a cooling economy and weak earnings from several AI players. Amazon's stock price fell by 6% during after-hours trading after its Q3 sales guidance missed analyst forecasts. Meanwhile, Apple's Q3 iPhone sales fell YoY but still beat top and bottom-line expectations as sales in the China region improved overall. The company stock is up over 18% YTD and is gearing up to launch Apple Intelligence software to power iPhones and Macs.
Elsewhere, European stocks declined, joining the US selloff over earnings and economic growth concerns. The latest July data indicated the biggest slump in US manufacturing in eight months.
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