$Intel(INTC)$’s recent earnings report paints a challenging picture for the chipmaking giant. The company announced it would lay off over 15% of its workforce as part of a $10 billion cost reduction plan, and it reported results that fell short of analysts' expectations. The stock slid 10% in extended trading following this news, reflecting investor disappointment and concern about the company's direction.
For the second quarter, Intel's earnings per share were a mere 2 cents adjusted, significantly below the 10 cents expected by analysts. Revenue came in at $12.83 billion, missing the anticipated $12.94 billion. Year-over-year, revenue declined by 1%, and the company posted a net loss of $1.61 billion, or 38 cents per share, compared to a net income of $1.47 billion, or 35 cents per share, in the same quarter last year.
The Client Computing Group, responsible for PC chips, brought in $7.41 billion in revenue, aligning closely with analyst expectations. However, the Data Center and Artificial Intelligence unit saw a 3% decline, with $3.05 billion in revenue, falling short of the $3.14 billion expected.
Intel’s forecast for the third quarter isn’t much brighter. The company anticipates an adjusted net loss of 3 cents per share on $12.5 billion to $13.5 billion in revenue. This is a stark contrast to the LSEG consensus, which expected adjusted net earnings of 31 cents per share and $14.35 billion in revenue.
One significant strategic move during the quarter was the announcement of an $11 billion investment from Apollo in a joint venture for a chip manufacturing plant in Ireland. Intel also launched its Xeon 6 server processors and the Gaudi 3 accelerator for AI workloads. Despite these advancements, the revocation of export licenses for consumer items to a customer in China, likely Huawei, adds another layer of complexity to Intel’s outlook.
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As an investor, it’s hard not to reflect on Intel’s capital allocation decisions. On their investor relations page, they proudly state, "As of March 30th, 2024, we were authorized to repurchase up to $110.0 billion, of which $7.24 billion remain available. We have repurchased 5.77 billion shares at a cost of $152.05 billion since the program began in 1990."
While share repurchases can be a sign of confidence and a way to return value to shareholders, I can't help but wonder if these funds could have been more effectively used for capital expenditures (CapEx). Imagine if this massive sum had been funneled into advancing Intel’s manufacturing capabilities or developing cutting-edge technologies. Perhaps then, Intel wouldn’t be in a position where $Taiwan Semiconductor Manufacturing(TSM)$ is "eating their lunch" in the chipmaking market.
Conclusion
Intel’s current trajectory reflects significant challenges and missed opportunities. The substantial workforce reduction and weaker-than-expected earnings underscore the need for a strategic pivot. While the company continues to innovate and invest in new technologies, its financial strategies and market position raise critical questions about its future.
In light of these developments, I remain cautious about Intel’s near-term prospects. The potential benefits of their ongoing and future projects are significant, but the execution and strategic financial management will be key to reversing their current fortunes. As always, a balanced approach to investment, considering both the risks and opportunities, will be crucial in navigating the road ahead for Intel.
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Disclaimer: This is just my analysis, and the market is unpredictable. Do your own research before making any investment decisions.
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