Intel suffers one of its worst days in 40 years as shares fall 26% after failing to post profit

Intel’s stock price fell more than 25% on Friday, its worst trading day in 40 years.

The company’s market value fell by about $30 billion after it issued disappointing forecasts and announced a 15% job cut, deepening concerns about its ability to catch up with Taiwan’s TSMC and other chipmakers.

“In our view, Intel’s problems are approaching existential levels,” said Stacy Rasgon, an analyst at Bernstein.

The layoffs — most of which the company said will happen by the end of 2024 — are part of a $10 billion cost-cutting plan aimed at turning around the computer giant.

“In short, we must align our cost structure with our new operating model and fundamentally change the way we do things,” Chief Executive Pat Gelsinger said in a note Thursday.

“Our revenue hasn’t grown as expected—and we haven’t yet fully embraced powerful trends like AI. Our costs are too high, our margins are too low,” he said.

Intel shares closed down 26% at $21.48, and are down 55% this year.

The California-based company rose to prominence in the 1990s thanks to the success of the PC. But since the early 2000s, Intel has faced increasingly fierce competition for market share.

Intel reported a significant decline in revenue, posting a net loss of $1.6 billion in the second quarter, compared with net income of $1.5 billion in the same period last year.

Gelsinger said the loss was due to the company’s focus on Core Ulta PC processors – designed to handle artificial intelligence – but suggested the move would balance out in the long term.

The company expects cuts of about $20 billion this year (on an adjusted basis), and is predicting cuts of about $17.5 billion in 2025 and even more in 2026.

Rasgon said that with these actions, as well as grants and support from partners, Intel could add $40 billion in cash to its balance sheet by the end of 2025.

Intel said in a statement that the cost reduction is aimed at improving the company’s liquidity and reducing its debt.

The cost-cutting plan comes just months after President Joe Biden announced a deal to provide Intel with $8.5 billion in funding and $11 billion in loans for chip factories in Arizona, New Mexico, Oregon and Ohio under the CHIPS Act.

Intel was reportedly the biggest beneficiary of the CHIPS Act.

The company reported adjusted earnings per share of $0.02, which was below LSEG analysts’ expectations of $0.10.

The company’s revenue was $12.83 billion, down 1% from a year ago and below expectations of $12.94 billion.

“We’ve previously indicated that our investments to be good and drive the AI ​​PC category will put pressure on margins in the near term,” Gelsinger said. “We believe the trade-offs are worth it. AI PC will grow from less than 10% of the market today to more than 50% in 2026.”

Intel also suffered other financial setbacks, such as the rapid move of Intel 4 and 3 processor wafers from its Oregon plant to a plant in Ireland.

Chief Financial Officer Dave Zinsser said the plant change will result in higher costs but will offset that in the long term and translate into higher gross margins.

Although Intel still has a majority market share – Intel processors account for 71% of CPUs in laptops, according to Statista – the company faces increasing price competition.

Intel’s Client Computing group, which makes chips for PCs, reported revenue of $7.41 billion, up 9% and close to StreetAccount analysts’ expectations of $7.42 billion.

The company has high hopes for its AI chips. It said it expects more than 40 million unit shipments for the full year.

Intel’s Data Center and AI business reported revenue of $3.05 billion, down 3% and missing StreetAccount’s estimate of $3.14 billion.

Intel’s third-quarter earnings guidance is in line with expectations, calling for revenue of $12.5 billion to $13.5 billion and a net loss of $0.03 per share.

Zinsser said data center revenue should increase in the second half of the year.

He added that challenges include weaker consumer and business spending, as well as a heavy emphasis on cloud servers for artificial intelligence, which forced Intel to shrink its total addressable market this year.

In the second quarter of June, Intel and asset manager Apollo announced an agreement under which Apollo will invest $11 billion to acquire a 49% stake from Intel in a joint venture that includes a facility in Ireland.

That same month, Intel introduced new Xeon 6 processors and Gaudi 3 AI accelerators.

According to a report by Reuters, in May Intel disclosed that the Commerce Department had revoked its export licenses to supply chips to a customer in China, presumably Chinese technology company Huawei Technologies.

Intel then said it expected second-quarter revenue to be in the range of $12.5 billion to $13.5 billion, but lower than the guidance range.