Intel (INTC) delivered better-than-expected fourth-quarter earnings, but the chipmaker’s challenges remain glaring.
The company reported revenue of $14.3 billion, slightly surpassing Wall Street’s tempered expectations. However, Intel’s outlook for the first quarter of 2025 disappointed investors, with revenue guidance of $11.7 billion to $12.7 billion, below analysts’ consensus of $12.85 billion.
Former CEO Pat Gelsinger’s abrupt departure last month underscores the company’s ongoing struggles. The board has appointed CFO David Zinsner and senior executive Michelle Johnston Holthaus as interim co-CEOs while it searches for a permanent leader. Investors are more focused on Intel’s strategic direction than on short-term earnings beats, with many speculating whether the company will explore break-up options or significant restructuring.
Market Share Erosion and AI Challenges
Intel has lost substantial ground to rivals like Advanced Micro Devices (AMD) and NVIDIA (NVDA), particularly in the AI space. The company’s failure to capitalize on the AI boom has exacerbated its woes, as demand shifts from traditional server processors to AI accelerators. Intel’s Data Center and AI unit posted a 3% year-over-year revenue decline to $3.4 billion, highlighting its struggle to compete with NVIDIA’s dominance.
Intel’s once-lucrative foundry business continues to underperform, with sales declining 13% to $4.5 billion. The company aims to turn its foundry unit profitable by 2027, but analysts remain skeptical given its lack of major external customers. Gross margin deterioration further underscores Intel’s challenges, with fourth-quarter margins slipping to 39.2% and first-quarter projections falling even lower to 33.8%. By contrast, NVIDIA’s gross margins remain above 70%.
IBM Soars on AI-Fueled Growth
While Intel grapples with its competitive shortcomings, International Business Machines (IBM) is thriving. The computing giant’s fourth-quarter earnings report sent its stock soaring 12% to a record high. IBM reported revenue of $17.55 billion, a modest 1% increase year-over-year, but its strength in AI-driven software propelled investor confidence.
IBM’s generative AI business grew by nearly $2 billion in a single quarter, bringing its total AI book of business to over $5 billion. The company’s software segment, now 45% of its total revenue, saw a robust 10.4% growth, led by strong performance in Red Hat, automation, and data and AI solutions. IBM’s full-year guidance of 5% constant-currency revenue growth signals continued momentum, marking a notable improvement from 2024’s 3% growth rate.
Investor Takeaway
Intel’s earnings beat may have provided a short-term reprieve, but its long-term challenges remain. The company’s inability to close the technological gap with NVIDIA and AMD, coupled with uncertainty surrounding its leadership transition, continues to weigh on investor sentiment. Meanwhile, IBM’s strong AI-driven performance highlights the shifting landscape of the tech industry, where companies successfully leveraging artificial intelligence are reaping the rewards. As Intel searches for its next CEO and charts its future, investors will be watching closely for signs of a true turnaround.
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