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Intel (INTC) is taking the term "kitchen sink quarter" to a whole new level, reporting an EPS and revenue miss for Q2, guiding Q3 EPS and revenue far below expectations, announcing a huge headcount reduction of at least 15% of its workforce, cutting its 2024 capex projections by over 20%, while also suspending its quarterly dividend. There's no way to sugar coat it, this was a disastrous report from INTC and the stock is reacting accordingly, plunging to its lowest levels since the spring of 2013.

It's hard to know where to start, but the return to a yr/yr sales decline and the collapse of INTC's gross margin tells most of the story

• In 4Q23, INTC generated top-line growth of nearly 10%, ending a streak of seven consecutive quarters of yr/yr sales declines. The swing to positive growth, which was mainly fueled be a recovery in the PC market, sparked hopes that INTC's turnaround and overhaul to a foundry business model was finally heading in the right direction. Just two quarters later, though, and those good vibes have completely vanished as Q2 revenue dipped by nearly 1% to $12.8 bln
• It's no secret that INTC has largely missed out on the initial phase of an AI boom that has catapulted NVIDIA's (NVDA) revenue and market cap to meteoric levels, but the degree to which it has fallen behind the competition became even more stark last night. Revenue in INTC's Data Center and AI (DCAI) segment decreased by 3% to $3.0 bln, compared to a 115% yr/yr surge in revenue for Advanced Micro's (AMD) Data Center segment.
• Rewinding to the Q1 earnings call, CEO Pat Gelsinger stated that Q1 looked like a bottom for the traditional data center business, but that clearly wasn't the case. Last night, Mr. Gelsinger commented that the economic outlook has weakened more than the company anticipated. However, the huge divergence in growth relative to AMD and NVDA also indicates that the company has and continues to lose market share at an alarming rate to those rivals.
• Shifting to the PC-centric Client Computing Group (CCG) segment, the demand story is a little brighter with revenue increasing by 9% to $7.4 bln. That growth, though, is being overshadowed by the steep drop in INTC's non-GAAP gross margin to 38.7% from 45.1% last quarter, badly missing its guidance of 43.5%. CFO David Zinsner disclosed during the earnings call that expenses tied to the production of chips for AI-enabled PCs are pressuring the segment's margins. There isn't any relief on the near-term horizon, either, with INTC forecasting that Q3 gross margin will tick slightly lower to 38.0%
• The Foundry segment, which is front-and-center in INTC's "IDM 2.0" strategy, saw revenue edge higher by 4% to $4.3 bln, marking an improvement from last quarter's 10% yr/yr decrease. INTC also noted that 18A, its new process technology that will help launch new CPUs for both PCs and data centers, is on track to be manufacturing-ready by the end of this year with wafer start volumes beginning in 1H25. That thin silver lining isn't enough to convince investors that INTC's foundry business is ready to take a major step forward and become a competitive threat to Taiwan Semiconductor Manufacturing (TSM).

To put it simply, INTC's dismal Q2 earnings report has turned even the most hopeful believers into skeptics as its financials take a major turn for the worse. Its restructuring actions will help to shore up the bottom-line, but that won't help solve the big picture question, which is whether INTC can ever return to its form of being a semiconductor heavyweight.