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Intel's (INTC) 2Q25 earnings report presented a mixed picture, with the chipmaker surpassing revenue expectations at $12.86 bln, driven by stronger-than-anticipated demand across its product lines. However, the company missed EPS expectations, reflecting ongoing profitability challenges that are significantly weighing on the stock. For Q3, INTC issued a similarly mixed view, forecasting revenue above expectations at $12.6-$13.6 bln, but projecting flat EPS, falling short of the FactSet consensus estimate of $0.04, signaling persistent pressure on margins and earnings.

• To preserve cash flow and bolster earnings, INTC announced aggressive cost-cutting measures, including the cancellation of planned factory projects in Poland and Germany, which have been idle since 2024, and a deliberate slowdown in the construction of its Ohio plant. CEO Lip-Bu Tan emphasized that INTC’s factory footprint had become “needlessly fragmented,” with capacity investments made in recent years far exceeding current demand, prompting a strategic pivot to optimize manufacturing and align spending with market realities.
• These moves, coupled with a $1.9 bln restructuring charge in Q2, reflect INTC’s focus on capital efficiency, targeting $18 bln in gross capital expenditures for 2025 and a reduction in operating expenses to $17 bln in 2025 and $16 bln in 2026.
• Despite the revenue beat, INTC’s gross margin plummeted by 9 percentage points yr/yr to 29.7%, well below the estimated 36.6%, driven by a combination of factors including an $800 mln non-cash impairment charge, accelerated depreciation of excess tools, and increased costs from tariffs. The shift toward a higher mix of outsourced products and the early ramp-up of the Panther Lake client product further pressured margins, as did competitive pricing dynamics in a market where INT faces intense competition from Advanced Micro Devices (AMD), Qualcomm (QCOM), and others.
• The Foundry segment remains a significant concern, with its operating loss widening to $3.2 bln in Q2 from $2.3 bln in Q1, despite a modest 3% revenue increase to $4.42 bln. Uncertainty surrounding the segment intensified following a Reuters report suggesting Tan might abandon external sales of the Intel 18A manufacturing process, though during the Q2 earnings call, Tan reaffirmed INTC’s commitment to Foundry, emphasizing its role in developing INTC’s own chips as a foundation for eventually attracting external customers. The segment’s struggles highlight the difficulty of competing with established players like Taiwan Semiconductor (TSMC).
• In contrast, the Data Center and AI (DCAI) segment showed resilience, posting a 4% revenue increase to $3.94 bln in Q2, following an 8% rise in Q1, driven by favorable yr/yr comparisons and growing demand for Xeon 6 CPUs and Gaudi 3 AI accelerators. Last quarter’s demand pull-forward due to tariff concerns makes the Q2 growth particularly encouraging, signaling improving traction in AI-driven markets. The upcoming launch of Clearwater Forest is expected to further bolster DCAI’s momentum, positioning INTC to capitalize on the expanding AI and data center markets despite competitive pressures.
• The Client Computing Group (CCG), however, continued to struggle, with revenue declining 3% to $7.9 bln in Q2, following an 8% drop in Q1, reflecting eroding market share to competition like AMD’s Ryzen processors and QQOM’s Snapdragon X series chips, which are gaining traction in the laptop market. Despite exceeding internal expectations for AI-friendly PC chips, with over 40 mln units projected for 2024, CCG faces intensifying competition that threatens INTC’s dominance in the client space. The upcoming Panther Lake launch is critical for CCG, as INTC aims to reinvigorate demand and reclaim lost ground in the PC market.

INTC is undertaking drastic measures to stabilize its financial position, including a 15-20% workforce reduction targeting a year-end headcount of approximately 75,000, the planned sale of non-core assets like Altera in Q3, and the idling of major projects in Poland, Germany, and Ohio. However, the company’s turnaround remains uncertain as it grapples with regaining market share from formidable competitors like AMD, NVIDIA (NVDA), and Arm Holdings (ARM), with its success hinging on execution in AI, foundry development, and upcoming product launches.