Intel loses $1.6 billion as data center CPU and foundry divisions struggle

On Thursday, Intel announced its financial results for the second quarter of 2024, and they weren't favorable to the chip giant: The company's revenue dropped by 1% year-over-year while its losses totaled $1.6 billion. Perhaps worse is that Intel expects the second half of the year to be challenging for its business. As a result, Intel announced plans to cut its workforce by a rather whopping 15% this year. 

Intel's cuts will be severe. The company plans to slash CapEx by 20% and reduce R&D tremendously as it restructures and stops work on 'underperforming' products. It will embark on one of the largest layoffs in its 56-year history. 

Intel's struggles on its foundry side of operations, the group that produces its chips, and a struggling data-center division had an outsized impact on the company's financial struggles. Here's the blow-by-blow.

Products make money, manufacturing loses it

Intel's revenue for Q2 2024 reached $12.8 billion, a decrease of 1% year-over-year, a startling contrast to AMD's 9% year-over-year revenue growth in Q2. The company lost $1.6 billion, however, a stark contrast to its $1.5 billion profit in the second quarter of 2023. The company's gross margin for Q2 2024 was 35.4% (GAAP), which is down just 0.4% compared to the same quarter a year ago.  

When it comes to losses and profitability, Intel's product business units earned $8.5 billion (up 4% year-over-year), and all of them except Altera were profitable; they generated $2.9 billion in operating income led by the company's Client Computing Group (CCG). By contrast, the company's Intel Foundry manufacturing operations earned $4.3 billion in revenue and generated a massive $2.8 billion loss as the company ramped up production of chips on its next-generation production technologies that use expensive EUV equipment.

"Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones," said Pat Gelsinger, Intel CEO. "Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation. These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value."

Intel Foundry: Massive losses

Intel's Foundry division, which makes over two-thirds of Intel's products and produces chips for third parties, earned $4.3 billion in the second quarter, which is slightly higher than $4.2 billion in the same quarter a year ago. The Intel Foundry unit deepened its loss to $2.8 billion, however, higher than $1.9 billion in Q2 2023 and $2.5 billion in Q1 2024. 

Considering the fact that Intel's manufacturing unit always has to invest more than other units, it is not surprising that it generated massive losses, especially when it ramps expensive server products and gets no revenue while they are formally sitting on its balance.

Intel's Client Computing Group: Yet another good quarter

Intel's Client Computing Group continues to be the company's leading business unit, with revenue totaling $7.4 billion in the second quarter, up from $6.8 billion in the same quarter a year ago but slightly lower than in Q1 2024, which is in line with expectations. CCG's operating margin was 33.7%, while its operating profit was $2.5 billion. 

Unfortunately, the company says that the market has not yet recovered as significantly as it once expected, which is why it expects the second half of the year to be more challenging for CCG and other units.

Intel's Datacenter and AI Group: Revenues drop, profits hit

Intel's data center and AI Group (DCAI) revenue in Q2 2024 ended up at $3.0 billion, flat compared to the first quarter but down from $3.2 billion in Q2 2023. The unit's operating margin dropped to 9.1%, and the operating profit declined to $0.3 billion, which is negligible for a unit that sells expensive processors for data centers.

The good news for Intel is that its Xeon 6 'Sierra Forest' processor is in volume production and is about to start shipments for Xeon 6 'Granite Rapids' CPU, and Gaudi 3 AI accelerators are projected to ramp up in the second half.

Altera, Edge, Network, and Mobileye: Mixed results

Intel’s NEX products unit, which focuses on 5G, edge, network, and telecommunications products, generated $1.3 billion in revenue in Q2 2024, representing a decrease from $1.4 billion in Q2 2023. Despite the decline in revenue, this segment did not incur losses, instead achieving a profit of $100 million. 

Mobileye's revenue for the second quarter skyrocketed to $440 million, up from $239 million in the first quarter. Still, this is a bit lower compared to $454 million in Q2 2023. The division posted an operating income of $72 million, down from $129 million in the same quarter a year ago but a significant improvement from a $68 million loss in Q1 2024.  

However, Altera's performance was less favorable. Altera's revenue dropped significantly year-over-year, dropping $361 million compared to $848 million in the same quarter the previous year. The division also experienced a loss of $25 million, a sharp decline from a $346 million profit in Q2 2023.

Uninspiring guidance

For the third quarter of 2024, Intel expects its revenue to be between $12.5 billion and $13.5 billion, which means it is going to be around $1.2 billion lower compared to the third quarter of 2023 and that despite the fact the company believes that it has better products this year. Furthermore, its GAAP gross margin is expected to drop to $34.5%, a troubling sign as its profitability plummets.