On the evening of August 2nd Beijing time, the stock price of veteran chip giant Intel fell by 26% to $21.48 per share, with a market value evaporation of about $32 billion, setting the largest daily decline since at least 1982.
Before the opening, Intel announced its Q2 2024 results: revenue of $12.8 billion, a year-on-year decrease of 1%; Net loss of $1.6 billion, with third quarter revenue predicted to be lower than expected. To cope with the current crisis, Intel plans to increase its cost cutting measures, announce a 15% layoff, and suspend dividends to shareholders starting from the fourth fiscal quarter.
Intel's current focus is mainly twofold. Firstly, it has been trying three years ago to "regain glory" through high-end chip manufacturing. This year, it has also separated its chip foundry business, and the large losses in the foundry business have sparked many discussions. However, while outsourcing is burning money, there is also considerable competitive pressure to compete with companies such as TSMC and Samsung. At the same time, Intel is actively laying out artificial intelligence, but due to the high cost and low profit of AI, it has not fully benefited from it.
Q2 performance falls short of expectations
Cease dividend payments from the fourth quarter onwards
According to financial report data, Intel achieved a revenue of $12.8 billion in the second quarter of 2024, a year-on-year decrease of 1%; The net profit attributable decreased from $1.5 billion in the same period last year to a loss of $1.6 billion. According to Intel, the main factors affecting the second quarter performance are the decrease in gross profit margin due to accelerated AI PC growth, high expenses related to non core businesses, and idle production capacity.
From a business perspective, in terms of products, Intel's total product revenue for the second quarter was $11.8 billion, a year-on-year increase of 4%. The Client Computing Division (CCG) generated revenue of 7.4 billion US dollars, a year-on-year increase of 9%; The Data Center and Artificial Intelligence Division (DCAI) still faces challenges, with Q2 revenue of $3 billion, a year-on-year decrease of 3%; The Network and Edge Business Unit (NEX) generated revenue of $1.3 billion, a year-on-year decrease of 1%.
Image source: Intel
In terms of outsourcing, Intel's outsourcing business revenue in the second quarter was $4.3 billion, a year-on-year increase of 4%; Altera's revenue was 361 million US dollars, a year-on-year decrease of 57%; The fully acquired autonomous driving company Mobileye's revenue was $440 million, a year-on-year decrease of 3%. According to Intel, the company will suspend dividends starting from the fourth quarter of 2024.
As for the AI new growth pole that many competitors have already benefited from this year, according to financial reports, Intel's AI PC shipments have exceeded 15 million units since December 2023 and will exceed 40 million units by the end of the year.
However, despite the release of many AI PCs and the Gaudi series' emphasis on cost-effectiveness, Intel CEO Pat Kissinger still bluntly stated in a letter to employees that "costs are too high and profit margins are too low", and the company has not fully benefited from powerful trends such as AI. Considering the financial performance and prospects for the second half of 2024, Kissinger believes that it will be "more difficult than previously expected". Intel expects its revenue for the third quarter of 2024 to be between $12.5 billion and $13.5 billion.
Against the backdrop of ongoing cost cutting in the OEM business, cost reduction has become Intel's first choice.
Externally, starting from the fourth quarter, Intel will suspend its dividend payments. Internally, on the one hand, Intel needs to reduce operating expenses, including streamlining operations, cutting expenses and employee numbers. Intel announced a 15% layoff and plans to reduce non GAAP research and development, marketing, general and administrative expenses to approximately $20 billion by 2024, and approximately $17.5 billion by 2025. On the other hand, Intel plans to reduce its total capital expenditures to $25 billion to $27 billion in 2024, with net capital expenditures expected to be between $11 billion and $13 billion.
After the release of performance data, Intel's stock price fell more than 28% during the trading session, and as of the close, it fell 26% to $21.48 per share, with a market value evaporating by about $32 billion overnight, setting the largest daily decline since at least 1982. In addition, S&P has placed Intel's rating on a negative credit watch list.
Plan to release Gaudi 3 in the third quarter
Mass production of wafers will begin in the first half of 2025
The expensive transformation focused on outsourcing is considered by the industry to be Intel's biggest challenge and opportunity at present.
Intel has always adhered to the "Integrated Device Manufacturer" (IDM) model that integrates design and manufacturing, rather than the common "Fabless" model in the semiconductor industry, laying the foundation for the company's transformation.
As the market share of the "moat" X86 was increasingly eroded by competitors, three years ago, Intel began to attempt to transform into contract manufacturing. At the beginning of this year, Intel announced the official spin off of its chip design and manufacturing business, and the wafer foundry division responsible for chip manufacturing business, with separate financial accounting and self financing.
According to a document submitted by the company to the US Securities and Exchange Commission (SEC) in April, the independent chip manufacturing division, Intel Foundry, had a revenue of $18.9 billion in 2023, a year-on-year decrease of 31%, and an operating loss of $7 billion. After the split, although the risks brought by the losses of the foundry can still be shared by the group, it is difficult for the performance of wafer foundry to improve in the short term, which also shows Intel's determination to transform.
From the information revealed during the release of this financial report, Intel still has high hopes for wafer foundry, stating that the company is taking decisive action through a new operating model to improve operational and capital efficiency, while accelerating the IDM 2.0 transformation. In addition, with the release of Intel 18A next year, Intel believes that the company will regain its process leadership.
According to Intel's previous goal, by 2030, Intel's external foundry scale will be second only to TSMC, surpassing Global Foundries, UMC, and Samsung, becoming the world's second largest foundry.
Based on the current disclosed process progress, according to Intel's statement, the company is about to complete the "Four Year Five Process Node" plan as scheduled; The Intel 18A process node is progressing smoothly and will be ready for production by the end of 2024. Mass production of wafers will begin in the first half of 2025; The product that marks the Inte1 18A process node will be launched to the mass market in 2025. In addition, Intel also plans to launch Intel& The reg; Gaudi3 AI accelerator continues to focus on "cost-effectiveness".
In the industry's view, Intel is currently in a "critical period". Once a flagship business, data centers are becoming increasingly competitive under the wave of artificial intelligence. Taking AMD (AMD Semiconductor), which has just released its financial report, as an example, in the second quarter of 2024, AMD's data center division generated revenue of $2.8 billion. Although not as high as Intel, the year-on-year increase reached 115%. The market is also optimistic about its third quarter performance, believing that AMD's AI chip sales are showing signs of accelerating.
Compared to this, it remains to be seen how much market share AI can help Intel regain. How to leverage US investment in domestic manufacturing and the global surge in demand for AI chips to truly "establish a foothold" in chip manufacturing and contract manufacturing is the key to Intel reshaping its core competitiveness.
Senior industrial economic observer Liang Zhenpeng also pointed out that under the promotion of AI, the chip industry may usher in a reshuffle, but it does not mean that all manufacturers will be equally affected. For Intel, its accumulation and advantages in chip foundry, as well as its leading position in the CPU field, may become the key to maintaining competitiveness in the AI era.
However, for Intel, which is currently in a critical period of transformation, its best core competitiveness lies in technological innovation and continuous research and development. In addition, it is necessary to pay attention to maintaining brand image and market reputation. Faced with competition from chip foundries such as Samsung and TSMC, Intel needs to come up with more advanced process technology and products.
