Intel Reports Q2-2024 Financial Results; Announces $10 Billion Cost Reduction Plan, Shares Fall 20%+

[btarunr]

Intel Corporation today reported second-quarter 2024 financial results. "Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones. Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation," said Pat Gelsinger, Intel CEO. "These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value."

"Second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our AI PC product, higher than typical charges related to non-core businesses and the impact from unused capacity," said David Zinsner, Intel CFO. "By implementing our spending reductions, we are taking proactive steps to improve our profits and strengthen our balance sheet. We expect these actions to meaningfully improve liquidity and reduce our debt balance while enabling us to make the right investments to drive long-term value for shareholders."



Cost-Reduction Plan
As Intel nears the completion of rebuilding a sustainable engine of process technology leadership, it announced a series of initiatives to create a sustainable financial engine that accelerates profitable growth, enables further operational efficiency and agility, and creates capacity for ongoing strategic investment in technology and manufacturing leadership. These initiatives follow the establishment of separate financial reporting for Intel Products and Intel Foundry, which provides a "clean sheet" view of the business and has uncovered significant opportunities to drive meaningful operational and cost efficiencies. The actions include structural and operating realignment across the company, headcount reductions, and operating expense and capital expenditure reductions of more than $10 billion in 2025 compared to previous estimates. As a result of these actions, Intel aims to achieve clear line of sight toward a sustainable business model with the ongoing financial resources and liquidity needed to support the company's long-term strategy.



The plan will enable the next phase of the company's multiyear transformation strategy, and is focused on four key priorities:

• Reducing Operating Expenses: The company will streamline its operations and meaningfully cut spending and headcount, reducing non-GAAP R&D and marketing, general and administrative (MG&A) to approximately $20 billion in 2024 and approximately $17.5 billion in 2025, with further reductions expected in 2026. Intel expects to reduce headcount by greater than 15% with the majority completed by the end of 2024.
• Reducing Capital Expenditures: With the end of its historic five-nodes-in-four-years journey firmly in sight, Intel is now shifting its focus toward capital efficiency and investment levels aligned to market requirements. This will reduce gross capital expenditures in 2024 by more than 20% from prior projections, bringing gross capital expenditures in 2024 to between $25 billion and $27 billion. Intel expects net capital spending in 2024 of between $11 billion and $13 billion. In 2025, the company is targeting gross capital expenditures between $20 billion and $23 billion and net capital spending between $12 billion and $14 billion.
• Reducing Cost of Sales: The company expects to generate $1 billion in savings in non-variable cost of sales in 2025. Product mix will continue to be a headwind next year, contributing to modest YoY improvements to 2025's gross margin.
• Maintaining Core Investments to Execute Strategy: The company continues to advance its long-term innovation and path to leadership across process technology and products, and the increased efficiency from its actions is expected to further support its execution. In addition, Intel continues to sustain investments to build a resilient and sustainable semiconductor supply chain in the United States and around the world.

Intel is taking the added step of suspending the dividend starting in the fourth quarter, recognizing the importance of prioritizing liquidity to support the investments needed to execute its strategy. The company reiterates its long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels.

In the second quarter, the company generated $2.3 billion in cash from operations and paid dividends of $0.5 billion.



Business Unit Summary
Intel previously announced the implementation of an internal foundry operating model, which took effect in the first quarter of 2024 and created a foundry relationship between its Intel Products business (collectively CCG, DCAI and NEX) and its Intel Foundry business (including Foundry Technology Development, Foundry Manufacturing and Supply Chain, and Foundry Services (formerly IFS)). The foundry operating model is a key component of the company's strategy and is designed to reshape operational dynamics and drive greater transparency, accountability, and focus on costs and efficiency. The company also previously announced its intent to operate Altera as a standalone business beginning in the first quarter of 2024. Altera was previously included in DCAI's segment results. As a result of these changes, the company modified its segment reporting in the first quarter of 2024 to align to this new operating model. All prior-period segment data has been retrospectively adjusted to reflect the way the company internally receives information and manages and monitors its operating segment performance starting in fiscal year 2024. There are no changes to Intel's consolidated financial statements for any prior periods.

Intel Products Highlights

• CCG: Intel continues to define and drive the AI PC category, shipping more than 15 million AI PCs since December 2023, far more than all of Intel's competitors combined, and on track to ship more than 40 million AI PCs by year-end. Lunar Lake, the company's next-generation AI CPU, achieved production release in July 2024, ahead of schedule, with shipments starting in the third quarter. Lunar Lake will power over 80 new Copilot+ PCs across more than 20 OEMs.
• DCAI: More than 130 million Intel Xeon processors power data centers around the world today, and at Computex Intel introduced its next-generation Intel Xeon 6 processor with Efficient-cores (E-cores), code-named Sierra Forest, marking the company's first Intel 3 server product architected for high-density, scale-out workloads. Intel expects Intel Xeon 6 processors with Performance-cores (P-cores), code-named Granite Rapids, to begin shipping in the third quarter of 2024. The Intel Gaudi 3 AI accelerator is also on track to launch in the third quarter and is expected to deliver roughly two-times the performance per dollar on both inference and training versus the leading competitor.
• NEX: Intel announced an array of AI-optimized scale-out Ethernet solutions, including the Intel AI network interface card and foundry chiplets that will launch next year. New infrastructure processing unit (IPU) adaptors for the enterprise are now broadly available and supported by Dell Technologies, Red Hat and others. IPUs will play an increasingly important role in Intel's accelerator portfolio, which the company expects will help drive AI data center growth and profitability in 2025 and beyond. Additionally, Intel and others announced the creation of the Ultra Accelerator Link, a new industry standard dedicated to advancing high-speed, low-latency communication for scale-up AI systems communication in data centers.

Intel Foundry Highlights

• Intel is nearing the completion of its promised five-nodes-in-four-years strategy, with Intel 18A on track to be manufacturing-ready by the end of this year and production wafer start volumes in the first half of 2025. In July 2024, Intel released to foundry customers the 1.0 PDK for Intel 18A. The company's first two Intel 18A products, Panther Lake for client—the first microprocessor to use RibbonFet, PowerVia and advanced packaging—and Clearwater Forest for servers, are on track to launch in 2025.
• Ansys, Cadence, Siemens, and Synopsys announced the availability of reference flows for Intel's embedded multi-die interconnect bridge (EMIB) advanced packaging technology, which simplifies the design process and offers design flexibility. The companies also declared readiness for Intel 18A designs.
• During the quarter, Intel named industry veteran Kevin O'Buckley to lead Foundry Services. The company also recently appointed Dr. Naga Chandrasekaran to lead Intel Foundry Manufacturing and Supply Chain. Their leadership will support Intel's continued development of the first systems foundry for the AI era.

Other Highlights
Intel announced its second Semiconductor Co-Investment Program (SCIP) agreement, the formation of a joint venture with Apollo related to Intel's Fab 34 in Ireland. SCIP is an element of Intel's Smart Capital strategy, a funding approach designed to create financial flexibility to accelerate the company's strategy, including investing in its global manufacturing operations, while maintaining a strong balance sheet.



Q3 2024 Dividend
The company announced that its board of directors has declared a quarterly dividend of $0.125 per share on the company's common stock, which will be payable Sept. 1, 2024, to shareholders of record as of Aug. 7, 2024.

As noted earlier, Intel is suspending the dividend starting in the fourth quarter.



Business Outlook
Intel's guidance for the third quarter of 2024 includes both GAAP and non-GAAP estimates as follows:

Reconciliations between GAAP and non-GAAP financial measures are included below. Actual results may differ materially from Intel's business outlook as a result of, among other things, the factors described under "Forward-Looking Statements" below. The gross margin and EPS outlook are based on the mid-point of the revenue range.

The complete slide-deck follows.


View at TechPowerUp Main Site

 

[64K]

Losing some money. Suspending dividends. Investors will not be happy. Shares down 5.5% in trading today. We haven't really began to see the impact of the defective CPUs yet. Not looking good for Intel's near future.

 

[damric]

Suspending dividends is a step in the right direction, though there is a lot of bloat to jettison before the ship can be righted.

Blame Raja

 

[JWNoctis]

Bracing for impact, and they could still spin off their fabs, depending on how their next node works out.

Suspending dividends is a step in the right direction, though there is a lot of bloat to jettison before the ship can be righted.

Blame Raja

Yes, and certainly not "bailing out the Titanic" bad. Not yet.

 

[JohH]

With a result and guidance like this I guess certain products that were planned will disappear from the roadmaps.

 

[Darmok N Jalad]

Anandtech also had an article on Meteor Lake yields. Basically, yields are terrible on the part of ML that Intel actually fabs, and they are just burning through wafers to get enough supply out the door. They can't afford to have partners go elsewhere for chips (especially now that Qualcomm is in the fray), and they really are taking it in the shorts with their own nodes. At one time, Intel was the best fabricator on the planet, but it's been a long struggle that starts with their 10nm efforts that never really materialized, Intel 7 appears to have been pushed too hard, and now Intel 4 is low-yield. If ever there was a time for Intel's competitors to move in on marketshare, it's now. It does explain AMD's mobile-first push with Zen 5, even if it's only a few weeks earlier.

Update: Intel Accelerated Ireland EUV Fab Ramp-Up as Meteor Lake Chips Were In Short Supply

www.anandtech.com

 

[usiname]

Good job Pat, keep the good work!
Looking forward to the market opening

 

[Chaitanya]

Losing some money. Suspending dividends. Investors will not be happy. Shares down 5.5% in trading today. We haven't really began to see the impact of the defective CPUs yet. Not looking good for Intel's near future.

Even their Sapphire Rappids seem to be affected with oxidation which isnt reported as much as 13th and 14th "Gen" problems. Also its quite shocking how much Intel(and nVidia) partners are afraid to speak out about the abuses.

 

[eidairaman1]

They just cut what 10000 personnel?

 

[64K]

They just cut what 10000 personnel?

Videocardz reports Intel plans to cut 19,000 jobs by the end of this year. About 15% of their workforce.

I've seen a few of these things in my time and this is shaping up to be another corporation train wreck in slow motion.

 

[Fouquin]

Receive $8.5B from CHIPS act to improve manufacturing and bolster chip production, squander it, lay off over 15,000 people (15% of total workforce) in R&D, admin, and other departments to save $10B.

I detest FUD, but this feels like the captain turning the ship after it's already hit the iceberg. Decisions made 5 years ago have set the course, and looking back at their desperation for the CHIPS Act to pass makes a lot more sense. This reeks of AMD's 2013-2014 delaying actions in cutting costs, divesting assets, and layoffs. Intel has a lot more to divest before they're in true danger, so let's hope they can seal the holes and deliver something on their roadmap on time and without drama for once.

 

[mechtech]

Anything about execs leading by example and taking a 90% cut?

 

[Visible Noise]

Even their Sapphire Rappids seem to be affected with oxidation which isnt reported as much as 13th and 14th "Gen" problems. Also its quite shocking how much Intel(and nVidia) partners are afraid to speak out about the abuses.

Xeon isn’t on the same node as client.

 

[TumbleGeorge]

Pat's salary must be $1 for year.

 

[R0H1T]

Those tens of billions in share buyback paying themselves huh

Dividends & Buybacks

www.intc.com

$32~33 billion over the last 5 years, roughly $50 billion in the last 7 years!

Anything about execs leading by example and taking a 90% cut?

What? This is America ~

Spoiler

And yes I know it's the same in 90% of the world out there!

 

[Steevo]

Oh no no, they will be the ones they'll keep.

The poll on TPU shows we aren’t willing to pay more for AI hardware, not sure why they keep pushing it.

Intel deserves the free market, as does every company, they can explain to their shareholders why they are failing, at the end of the day the market will determine what the market wants. I hope it doesn’t lead to AMD getting a big head and not progressing….

 

[Chaitanya]

Xeon isn’t on the same node as client.

Sapphire rapids changed that.

 

[FoulOnWhite]

AI=artificially inflated

Got to feel sorry for the 10,000 who will lose their jobs though.

Things are not so rosy now at Intel as they have been, they still have a fair margin in the % of AMD v Intel though but stuff like this will see it slip more.

 

[R0H1T]

Intel could've avoided a lot of this by investing $50 billion more in the last decade or so on actual R&D but hey who couldn't see this coming from a light year

 

[LittleBro]

Anandtech also had an article on Meteor Lake yields. Basically, yields are terrible on the part of ML that Intel actually fabs, and they are just burning through wafers to get enough supply out the door. They can't afford to have partners go elsewhere for chips (especially now that Qualcomm is in the fray), and they really are taking it in the shorts with their own nodes. At one time, Intel was the best fabricator on the planet, but it's been a long struggle that starts with their 10nm efforts that never really materialized, Intel 7 appears to have been pushed too hard, and now Intel 4 is low-yield. If ever there was a time for Intel's competitors to move in on marketshare, it's now. It does explain AMD's mobile-first push with Zen 5, even if it's only a few weeks earlier.

Update: Intel Accelerated Ireland EUV Fab Ramp-Up as Meteor Lake Chips Were In Short Supply

www.anandtech.com

If the yields are so bad with Meteor Lake on 4 nm, imagine how it'll go with 18A ... Surely not better - the yields tends to worse as the node shrinks further.
'Ol Patty must be spinning his turds really quickly right now, as he said that he had bet everything on Intel 18A.
Basically, even if the chip based on 18A was a great success, it'd kind of pointless if Intel could not produce an amount to satisfy OEM's needs.

After staying 8+ years on 14 nm node suddenly they decided to do 5 nodes in 4 years commitment. Now you have it. And laying off people from R&D is a huuuuge mistake.


Btw, Intel stocks are in a really bad shape after recent Q2 earnings announcement - almost -19% in after hours and expected to drop further today:

 

[john_]

As an AMD shareholder, I like that AMD will have more time in the market before Intel fixes it's problems.
As an Intel shareholder....damn....that was painful! And at least Intel took the right decision by cutting the dividend. You can't axe so many jobs and keep paying dividend. In fact they should also cut Pat's salary to like $5 and a sandwich per month, because until now he is failing in everything.

At one time, Intel was the best fabricator on the planet, but it's been a long struggle that starts with their 10nm efforts that never really materialized, Intel 7 appears to have been pushed too hard, and now Intel 4 is low-yield.

The problem with Intel is that, it seems it's personnel is just not good enough to handle this kind of technology. I mean, after so many years and they are still facing problems. TSMC had a very bad 20nm node only to recover with it's 16nm FinFET and never look back. Intel is going from bad to worst to bad to mediocre to bad these last years. Never managing to bring out something good to at least ignite some confidence. Maybe that's why they are "Reportedly Lures TSMC’s “Top-Level” Arizona Employees". Maybe a few people who will lose their jobs in the manufacturing department, they will be replaced by ex TSMC employees.

If ever there was a time for Intel's competitors to move in on marketshare, it's now. It does explain AMD's mobile-first push with Zen 5, even if it's only a few weeks earlier.

Maybe it also explains why Microsoft is so determine this time to push Windows on ARM.

 

[Daven]

Layoffs are a lot higher than previously reported…15% instead of 10%.

Dividends are being suspended by the end of the year.

Data center at $3B is just above AMDs $2.8B. AMD will make more in the data center next quarter given future outlooks.

Stock is down 27% for the entire day (trading plus after hours) taking Intel back to 2013 stock values.

Intel is approaching the range where it could be purchased by another company.

 

[64K]

Intel is approaching the range where it could be purchased by another company.

This is something that I don't know much about but I guess the question is can the x86 license be transferred to the buyer? I have heard that it can't be when the possibility that AMD could face bankruptcy years ago was discussed here.

 

[R0H1T]

It was an assumption but never really tested in courts, Intel's not going out be bought out though because the US govt will step in! This is almost like a repeat of 2008/09 except with chipzilla.

 

[Daven]

It does explain AMD's mobile-first push with Zen 5, even if it's only a few weeks earlier.

AMD mobile chips are six months early. Usually, they are released around CES in the year after the desktop chips.

They just cut what 10000 personnel?

At 15% reduction, it could be as high as 20,000 employees if you start from 110,000 total.

This is something that I don't know much about but I guess the question is can the x86 license be transferred to the buyer? I have heard that it can't be when the possibility that AMD could face bankruptcy years ago was discussed here.

Uh, Intel owns x86. So if you buy Intel you buy everything they own including x86. How would it not transfer? Does God have a say or something? It's not like the x86 license is locked inside a hovering crystal ball that can't be moved.