Intel’s (INTC) second-quarter earnings report offered a stark look at the chipmaker’s ongoing transformation under new CEO Lip-Bu Tan.
While revenue exceeded expectations, the company’s deteriorating profitability and widening losses in its manufacturing arm sent investors scrambling. Shares fell more than 9% Friday, reflecting skepticism around the turnaround plan and doubts about Intel’s future as a leading chip manufacturer.
Foundry Woes Deepen Despite Revenue Beat
Intel generated $12.9 billion in revenue in Q2, narrowly surpassing expectations. But that top-line beat couldn’t hide the pain underneath. Gross margin tumbled to 29.7%, a steep nine-point drop from a year ago, weighed down by an $800 million impairment charge, excess depreciation, and cost pressures from tariffs and outsourced production.
The foundry business—the heart of Intel’s strategy to compete with Taiwan Semiconductor (TSM)—continues to hemorrhage cash. Operating losses widened to $3.2 billion, up from $2.3 billion in Q1, even as revenue inched up just 3%. Concerns escalated after the company appeared to walk back ambitions for external sales of its 18A manufacturing process, instead signaling that initial use would be largely internal.
CEO Lip-Bu Tan and CFO David Zinsner sought to reassure investors during Thursday’s earnings call, emphasizing the company’s long-term commitment to foundry. But in a filing, Intel acknowledged that it may pause or even abandon its next-generation 14A node if no major customers emerge—casting further doubt on the viability of its manufacturing turnaround.
Aggressive Cost Cuts and Layoffs Signal Strategic Reset
In response to mounting financial strain, Intel is enacting sweeping cost-cutting measures. The company recorded a $1.9 billion restructuring charge in Q2 and plans to slash its workforce by up to 20%, bringing headcount down to 75,000 from over 96,000 at the end of June. Much of that reduction is already underway, including a 50% cut in middle management layers.
Planned chip plants in Germany and Poland have been scrapped, and construction in Ohio has been significantly slowed. Intel is now tying capital investment to confirmed demand—an explicit rejection of the “build it and they will come” philosophy that defined its prior leadership.
Capital expenditures are expected to total $18 billion in 2025, with operating expenses trimmed to $17 billion this year and $16 billion in 2026. Tan made it clear: every investment must meet an economic threshold, and speculative spending is off the table.
Despite these measures, the bottom line remains under pressure. Intel reported a net loss of 10 cents per share, missing consensus expectations of a slight profit. For Q3, the company projected revenue between $12.6 and $13.6 billion—above analyst estimates—but expects earnings to remain flat, signaling continued margin compression.
AI and Data Center Strength Offer Glimmer of Hope
While the overall picture remains grim, there are signs of resilience in Intel’s Data Center and AI (DCAI) segment. Revenue rose 4% year-over-year to $3.94 billion, building on an 8% gain in Q1. Demand for Xeon 6 processors and Gaudi 3 AI accelerators is growing, and the upcoming launch of the Clearwater Forest platform could further solidify Intel’s presence in AI computing.
In contrast, the Client Computing Group (CCG)—responsible for PC chips—continues to falter. Revenue dropped 3% in Q2, extending a slump driven by tough competition from AMD’s (AMD) Ryzen and Qualcomm’s (QCOM) Snapdragon platforms. Intel’s Panther Lake launch is expected to reinvigorate this space, but it must overcome stiff headwinds in pricing and consumer sentiment.
Tan also pointed to corporate PC refresh cycles and the end of Microsoft (MSFT) Windows 10 support as potential catalysts for recovery, particularly as Intel rolls out AI-enabled PC chips. Still, analysts remain cautious, noting that Intel’s dominance in PCs is being steadily eroded.
Conclusion
Intel is undergoing one of the most radical restructurings in its history. Under new leadership, the company is retreating from overbuilt ambitions and sharpening its focus on financial discipline, core computing, and AI-driven growth. But with deep losses in its foundry business, persistent margin pressure, and uncertainty over next-gen chip development, the road to recovery remains long and uncertain. Investors, for now, are bracing for more turbulence.
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