$1.6 Billion Loss: Intel Faces as Data Center and Foundry Divisions Struggle

Intel reports a $1.6 billion loss for Q2 2024 as its data center and foundry divisions face significant challenges

Introduction

Intel has announced its financial results for the second quarter of 2024, revealing a challenging period for the chip giant. Intel reported a 1% year-over-year drop in revenue, culminating in a substantial loss of $1.6 billion.

The outlook for the third quarter remains bleak, with Intel expecting continued difficulties in its business operations.

As part of its restructuring efforts, Intel plans to reduce its workforce by 15% this year, one of the largest layoffs in its 56-year history.

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Significant Workforce Reductions and Cost-Cutting Measures

To navigate these financial challenges, Intel is implementing severe cost-cutting measures. The company plans to slash capital expenditures (CapEx) by 20% and significantly reduce its research and development (R&D) budget.

These measures aim to improve efficiency and focus resources on high-performing projects, but they also involve stopping work on underperforming products.

Financial Performance: A Detailed Breakdown

Revenue and Losses

Intel’s revenue for Q2 2024 reached $12.8 billion, marking a 1% decrease from the previous year. This decline is starkly contrasted by AMD’s 9% year-over-year revenue growth in the same period.

Intel loss of $1.6 billion is a significant downturn from its $1.5 billion profit in Q2 2023. The company’s gross margin for Q2 2024 was 35.4% (GAAP), a slight decrease from the 35.8% recorded in Q2 2023.

Client Computing Group (CCG)

The Client Computing Group remains Intel’s leading business unit, generating $7.4 billion in revenue in Q2 2024, up from $6.8 billion a year earlier.

However, this figure is slightly lower than the revenue reported in Q1 2024. The operating margin for CCG stood at 33.7%, with an operating profit of $2.5 billion.

Despite these positive figures, Intel anticipates more challenges ahead for this unit due to slower market recovery.

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Intel Foundry Services (IFS)

Intel Foundry Services, responsible for producing Intel’s chips and those of third parties, reported $4.3 billion in revenue for Q2 2024, a slight increase from $4.2 billion in Q2 2023.

However, the unit experienced a significant loss of $2.8 billion, up from $1.9 billion in Q2 2023 and $2.5 billion in Q1 2024.

The increase in losses is attributed to the high costs associated with ramping up production using next-generation EUV equipment.

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Datacenter and AI Group (DCAI)

The Datacenter and AI Group reported $3.0 billion in revenue for Q2 2024, a slight decline from $3.2 billion in Q2 2023.

The operating margin dropped to 9.1%, and the operating profit fell to $0.3 billion. Despite these challenges, Intel is optimistic about the upcoming launches of its Xeon 6 ‘Sierra Forest’ and ‘Granite Rapids’ processors, as well as the Gaudi 3 AI accelerators, which are expected to ramp up in the second half of the year.

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Network and Edge Group (NEX)

The Network and Edge Group, focusing on 5G, edge, and telecommunications products, generated $1.3 billion in revenue for Q2 2024, down from $1.4 billion in Q2 2023.

Despite the revenue decline, the unit achieved a profit of $100 million, demonstrating its resilience in a challenging market.

Mobileye

Mobileye, Intel’s autonomous driving technology division, reported $440 million in revenue for Q2 2024, a substantial increase from $239 million in Q1 2024 but slightly lower than $454 .million in Q2 2023.

The division posted an operating income of $72 million, a significant improvement from a $68 million loss in Q1 2024, though down from $129 million in Q2 2023.

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Altera

Altera’s performance was less favorable, with revenue dropping to $361 million in Q2 2024 from $848 million in Q2 2023.

The division experienced a loss of $25 million, a sharp decline from a $346 million profit in the same quarter the previous year.

Uninspiring Guidance for Q3 2024

Looking ahead, Intel expects its revenue for Q3 2024 to be between $12.5 billion and $13.5 billion, approximately $1.2 billion lower than Q3 2023.

The company also anticipates a drop in its GAAP gross margin to 34.5%, signaling further challenges in maintaining profitability.

Strategic Initiatives and Future Outlook

Intel CEO Pat Gelsinger acknowledged the disappointing financial performance but emphasized the company’s commitment to its strategic initiatives.

Intel aims to leverage its new operating model to improve operating and capital efficiencies while accelerating the IDM 2.0 transformation.

The launch of Intel 18A next year is expected to help regain process technology leadership, strengthen market position, and enhance profitability.

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Conclusion

Intel $1.6 Billion Loss in Q2 2024 financial results highlight significant challenges, particularly in its foundry and data center divisions.

The company’s aggressive cost-cutting measures and strategic initiatives aim to navigate these difficulties and position Intel for future growth.

However, the outlook for the second half of the year remains uncertain, with Intel facing a challenging market environment.

Kumar Priyadarshi
Kumar Priyadarshi

Kumar Joined IISER Pune after qualifying IIT-JEE in 2012. In his 5th year, he travelled to Singapore for his master’s thesis which yielded a Research Paper in ACS Nano. Kumar Joined Global Foundries as a process Engineer in Singapore working at 40 nm Process node. Working as a scientist at IIT Bombay as Senior Scientist, Kumar Led the team which built India’s 1st Memory Chip with Semiconductor Lab (SCL).

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