Chip giant Intel (INTC) reported second-quarter earnings after the bell on Thursday, missing the top and bottom lines and announcing a $10 billion cost-cutting plan to cut 15% of its workforce and suspend dividend payments. In a press release, Intel said it expects third-quarter revenue of $12.5 billion to $13.5 billion, well below analysts’ expectations of $14.3 billion.
The chipmaker’s shares fell more than 16% after the news.
Intel is staging a massive turnaround as it looks to regain market share lost to rival AMD (AMD) while building out its AI chip and third-party foundry businesses. It all comes as the PC market is in the early stages of a recovery after eight straight quarters of declines following the explosive growth the industry experienced at the start of the COVID-19 pandemic.
The company reported earnings per share (EPS) of $0.02 on revenue of $12.8 billion. Analysts had expected EPS of $0.10 and revenue of $12.9 billion. The company saw EPS of $0.13 on revenue of $12.9 billion in the year-ago quarter, according to analyst estimates compiled by Bloomberg.
The chipmaker is also expected to lay off thousands of workers in the coming days, according to Bloomberg. The company is spending billions of dollars on factories and other facilities around the world in an effort to regain its share of the chip manufacturing industry, which is dominated by Taiwan Semiconductor (TSMC).
Intel’s Data Center and AI segment brought in $3.05 billion in the quarter, below expectations of $3.07 billion. The Data Center and AI business offers Intel an opportunity to grow its revenue thanks to huge demand for CPUs and GPUs to power AI applications. But Intel’s GPUs aren’t as sought after as Nvidia’s (NVDA), which are considered to have the best overall chips for AI processing.
Shares of Intel are down 38% year to date, compared with AMD, which is down just 3.7%. Shares of Nvidia are up 127%.
While data centers and AI get most of the attention, Intel’s Client segment, which includes sales of chips for business and consumer computers, is still the largest business area.
For the quarter, Intel saw Client revenues of $7.4 billion. Wall Street expected revenues of $7.5 billion. The company saw Client revenues of $6.7 billion in the year-ago quarter.
However, Intel is facing a potentially existential threat in the PC space from an unlikely source: Qualcomm (QCOM). The company, better known for developing chips for smartphones and tablets, released its new Snapdragon X Elite PC chip in May as part of Microsoft’s new Surface Laptop and Surface Pro.
The chip offers better power and battery life than competing Intel and AMD chips, making it a quality rival to Apple’s own M-series chips. But Intel is expected to launch its answer to Qualcomm’s processor later this fall.
Then there’s Intel’s Foundry business. The company is opening up its foundries to outside chip designers in the hopes of creating a business that can rival TSMC’s own foundry business. But so far, Intel is its own biggest customer. And while it has customers lined up, including Microsoft, it will take time for the company to gain traction in the market.
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