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Intel's (INTC) Q2 Earnings Miss on High Costs, Shares Fall
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Intel Corporation (INTC - Free Report) reported lackluster second-quarter 2024 results owing to soft demand trends and stiff export restrictions that hindered top-line growth. Despite solid traction from its IDM 2.0 (integrated device manufacturing) strategy, margins were significantly affected by an accelerated ramp-up of AI PC, charges related to non-core businesses and unused capacity, unfavorable product mix and competitive pricing by rivals. Consequently, both the top and bottom lines missed the respective Zacks Consensus Estimate.
Management has embarked on a stringent cost-cutting plan to tide over the storm and rebuild a sustainable growth engine. Following the dismal quarterly results, shares fell drastically in after-market trading.
Net Income
The company reported a GAAP loss of $1.6 billion or a loss of 38 cents per share against a net income of $1.48 billion or 35 cents per share in the year-ago quarter. The loss was primarily attributable to higher operating expenses and lower income tax benefits accrued in the quarter.
Non-GAAP earnings in the reported quarter were $83 million or 2 cents per share compared with $547 million or 13 cents per share a year ago. The bottom line missed the Zacks Consensus Estimate by 8 cents.
Intel Corporation Price, Consensus and EPS Surprise
GAAP revenues in the reported quarter were $12.83 billion, down from $12.95 billion a year ago. The quarterly revenues were in line with the guided range provided in May, although it missed the consensus estimate of $12.92 billion. Management observed that weaker-than-anticipated demand trends were largely due to a challenging macroeconomic environment and export restrictions to China, which is one of its larger markets. Intel expects customer inventory levels to remain elevated through the remainder of 2024.
Segment Performance
Client Computing Group (CCG) revenues increased 9.3% year over year to $7.41 billion. This was primarily due to the strength in AI PCs that has taken the market by storm, with nearly 15 million units of AI PCs shipped since the launch in December last year. The company remains firmly on track to ship more than 40 million units of AI PCs by the end of 2024 and 100 million by 2025.
Datacenter and AI Group (DCAI) revenues declined 3.5% year over year to $3.04 billion owing to competitive pricing by rivals. However, the company is making solid progress in Intel Xeon processors with Intel Xeon 6 processor with Efficient-cores (E-cores), code-named Sierra Forest, marking the company’s first Intel 3 server product architected for high-density, scale-out workloads. Intel Xeon 6 processors with Performance-cores (P-cores), code-named Granite Rapids, are expected to begin shipping in the third quarter of 2024, along with the Intel Gaudi 3 AI accelerator.
Network and Edge Group (NEX) revenues declined to $1.34 billion from $1.36 billion as elevated inventory levels and soft demand trends affected segment sales.
While total Intel Products revenues were up to $11.8 billion from $11.3 billion a year ago, Intel Foundry revenues improved to $4.32 billion from $4.17 billion. All Other revenues, which include Altera, Mobileye and Other businesses, decreased to $968 million from $1.42 billion a year ago.
Other Operating Details
Non-GAAP gross margin declined to 38.7% from 39.8% a year ago, while non-GAAP operating margin was down from 3.5% to 0.2%. Margins were significantly hurt by an accelerated ramp-up of AI PC as management believes that the AI PC market will grow exponentially from less than 10% at present to more than 50% by 2026. In addition, margins were affected by charges related to non-core businesses and unused capacity, unfavorable product mix and competitive pricing by rivals.
To improve its profitability, management has initiated a cost reduction plan that includes structural and operating realignment across the company, about 15,000 job cuts and operating expense and capital expenditure reductions. In addition, the company has suspended its dividend starting in the fourth quarter.
Cash Flow & Liquidity
As of Jun 30, 2024, Intel had cash and cash equivalents of $11.29 billion, with $48.33 billion of long-term debt. In the first six months of 2024, Intel generated $1.07 billion of cash from operating activities compared with $1.02 billion a year ago.
Outlook
For the third quarter of 2024, Intel expects GAAP revenues to be within $12.5-$13.5 billion. Weaker spending across consumer and enterprise markets, especially in China, and elevated customer inventory levels are likely to affect third-quarter revenues. Non-GAAP gross margin is likely to be 38%. Non-GAAP loss is expected to be around 3 cents per share.
Cogent Communications Holdings, Inc. (CCOI - Free Report) is scheduled to release second-quarter 2024 earnings on Aug 8. The Zacks Consensus Estimate for earnings is pegged at a loss of $1.02 per share, suggesting a decline of 684.6% from the year-ago reported figure.
Akamai Technologies, Inc. (AKAM - Free Report) is slated to release second-quarter 2024 earnings on Aug 8. The Zacks Consensus Estimate for earnings is pegged at $1.54 per share, indicating growth of 3.4% from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 4.8%. AKAM delivered an average earnings surprise of 5.4% in the last four reported quarters.
Keysight Technologies, Inc. (KEYS - Free Report) is set to release third-quarter fiscal 2024 earnings on Aug 20. The Zacks Consensus Estimate for earnings is pegged at $1.35 per share, implying a decline of 38.4% from the year-ago reported figure.
Keysight has a long-term earnings growth expectation of 5.5%. KEYS delivered an average earnings surprise of 4.4% in the last four reported quarters.
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Intel's (INTC) Q2 Earnings Miss on High Costs, Shares Fall
Intel Corporation (INTC - Free Report) reported lackluster second-quarter 2024 results owing to soft demand trends and stiff export restrictions that hindered top-line growth. Despite solid traction from its IDM 2.0 (integrated device manufacturing) strategy, margins were significantly affected by an accelerated ramp-up of AI PC, charges related to non-core businesses and unused capacity, unfavorable product mix and competitive pricing by rivals. Consequently, both the top and bottom lines missed the respective Zacks Consensus Estimate.
Management has embarked on a stringent cost-cutting plan to tide over the storm and rebuild a sustainable growth engine. Following the dismal quarterly results, shares fell drastically in after-market trading.
Net Income
The company reported a GAAP loss of $1.6 billion or a loss of 38 cents per share against a net income of $1.48 billion or 35 cents per share in the year-ago quarter. The loss was primarily attributable to higher operating expenses and lower income tax benefits accrued in the quarter.
Non-GAAP earnings in the reported quarter were $83 million or 2 cents per share compared with $547 million or 13 cents per share a year ago. The bottom line missed the Zacks Consensus Estimate by 8 cents.
Intel Corporation Price, Consensus and EPS Surprise
Intel Corporation price-consensus-eps-surprise-chart | Intel Corporation Quote
Revenues
GAAP revenues in the reported quarter were $12.83 billion, down from $12.95 billion a year ago. The quarterly revenues were in line with the guided range provided in May, although it missed the consensus estimate of $12.92 billion. Management observed that weaker-than-anticipated demand trends were largely due to a challenging macroeconomic environment and export restrictions to China, which is one of its larger markets. Intel expects customer inventory levels to remain elevated through the remainder of 2024.
Segment Performance
Client Computing Group (CCG) revenues increased 9.3% year over year to $7.41 billion. This was primarily due to the strength in AI PCs that has taken the market by storm, with nearly 15 million units of AI PCs shipped since the launch in December last year. The company remains firmly on track to ship more than 40 million units of AI PCs by the end of 2024 and 100 million by 2025.
Datacenter and AI Group (DCAI) revenues declined 3.5% year over year to $3.04 billion owing to competitive pricing by rivals. However, the company is making solid progress in Intel Xeon processors with Intel Xeon 6 processor with Efficient-cores (E-cores), code-named Sierra Forest, marking the company’s first Intel 3 server product architected for high-density, scale-out workloads. Intel Xeon 6 processors with Performance-cores (P-cores), code-named Granite Rapids, are expected to begin shipping in the third quarter of 2024, along with the Intel Gaudi 3 AI accelerator.
Network and Edge Group (NEX) revenues declined to $1.34 billion from $1.36 billion as elevated inventory levels and soft demand trends affected segment sales.
While total Intel Products revenues were up to $11.8 billion from $11.3 billion a year ago, Intel Foundry revenues improved to $4.32 billion from $4.17 billion. All Other revenues, which include Altera, Mobileye and Other businesses, decreased to $968 million from $1.42 billion a year ago.
Other Operating Details
Non-GAAP gross margin declined to 38.7% from 39.8% a year ago, while non-GAAP operating margin was down from 3.5% to 0.2%. Margins were significantly hurt by an accelerated ramp-up of AI PC as management believes that the AI PC market will grow exponentially from less than 10% at present to more than 50% by 2026. In addition, margins were affected by charges related to non-core businesses and unused capacity, unfavorable product mix and competitive pricing by rivals.
To improve its profitability, management has initiated a cost reduction plan that includes structural and operating realignment across the company, about 15,000 job cuts and operating expense and capital expenditure reductions. In addition, the company has suspended its dividend starting in the fourth quarter.
Cash Flow & Liquidity
As of Jun 30, 2024, Intel had cash and cash equivalents of $11.29 billion, with $48.33 billion of long-term debt. In the first six months of 2024, Intel generated $1.07 billion of cash from operating activities compared with $1.02 billion a year ago.
Outlook
For the third quarter of 2024, Intel expects GAAP revenues to be within $12.5-$13.5 billion. Weaker spending across consumer and enterprise markets, especially in China, and elevated customer inventory levels are likely to affect third-quarter revenues. Non-GAAP gross margin is likely to be 38%. Non-GAAP loss is expected to be around 3 cents per share.
Zacks Rank
Intel currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Upcoming Releases
Cogent Communications Holdings, Inc. (CCOI - Free Report) is scheduled to release second-quarter 2024 earnings on Aug 8. The Zacks Consensus Estimate for earnings is pegged at a loss of $1.02 per share, suggesting a decline of 684.6% from the year-ago reported figure.
Akamai Technologies, Inc. (AKAM - Free Report) is slated to release second-quarter 2024 earnings on Aug 8. The Zacks Consensus Estimate for earnings is pegged at $1.54 per share, indicating growth of 3.4% from the year-ago reported figure.
Akamai has a long-term earnings growth expectation of 4.8%. AKAM delivered an average earnings surprise of 5.4% in the last four reported quarters.
Keysight Technologies, Inc. (KEYS - Free Report) is set to release third-quarter fiscal 2024 earnings on Aug 20. The Zacks Consensus Estimate for earnings is pegged at $1.35 per share, implying a decline of 38.4% from the year-ago reported figure.
Keysight has a long-term earnings growth expectation of 5.5%. KEYS delivered an average earnings surprise of 4.4% in the last four reported quarters.