On the early morning of August 2nd, as soon as the stock market opened in the United States, Intel's stock prices slid down sharply, as if they were on a slippery slide.
At its worst, the stock value plummeted by nearly 30%!
By the time the stock market closed, Intel's stock had still dropped by more than 26%, marking the largest decline since 1982. On this day, Intel lost as much as $32.37 billion, which, when converted to Chinese yuan, amounts to 233.7 billion yuan - it's really heart-wrenching!
In fact, there are reasons for Intel's stock to plummet so miserably. Their recently released report card is filled with news that is not very pleasing: the earnings in the second quarter did not meet everyone's expectations, and the third quarter also seems not very optimistic. The company also said that it would lay off employees and suspend dividend payments.
Specifically, Intel earned $12.83 billion in the second quarter of this year, which is 1% less than the same period last year, while everyone thought they could earn $12.95 billion. They only earned $0.02 per share, which is 85% less than last year, and analysts thought they could earn $0.10. Moreover, their profitability (gross margin) has also declined, from 39.8% last year to 38.7%, far from the expected 43.6%.
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Once the report card was released, many financial companies were not very optimistic about Intel, and some even put Intel's credit rating on the "key focus" list, as if to say: "This company may encounter trouble in the future." In order to save money, Intel decided to lay off about 15,000 people, which is 15% of the company's employees! Moreover, they also decided to stop dividend payments from the fourth quarter of this year, which is the first time in 32 years. Experts say that these actions may further hit Intel's stock.
Looking at the business income by segment:
In this quarter, the performance of various businesses on Intel's report card is a bit like students' grades, some subjects are good, and some are not very ideal. Let's talk about the client computing segment first, which is the department that helps everyone build computers. They earned $7.41 billion, which is a 9% increase compared to the same period last year, but this performance still did not meet the expectations of the "teacher" (analysts) of $7.53 billion.Let's take a look at the data center and artificial intelligence business. They made $3.05 billion this quarter, which is 3% less than last year and slightly disappointing as the teacher originally expected them to make $3.07 billion. There is also the foundry business that helps others make chips. Although it made $4.32 billion, a 4% increase from last year, it still fell short of the teacher's estimate of $4.47 billion.
In the network and edge computing business, they made $1.3 billion, a slight decrease of 1% from last year. Other businesses are a bit miserable, with a sharp drop in revenue of 32%, leaving only $968 million. Although it is better than the 46% decline in the previous quarter, the overall performance is still weak.
Intel's big boss, Pat Gelsinger, also admitted that the company has not made enough money recently after seeing the report card. But he also said that the company has made progress in the technology of making things. He also mentioned that the second half of the year will be more difficult, but the company is trying to get better, such as improving efficiency and transformation. Gelsinger also revealed some good news that there will be a new technology next year - Intel 18A process.
The financial director, David Zinsner, said that the poor performance this quarter is due to the artificial intelligence computers selling too fast, some less important businesses spending too much money, and the factories not being fully utilized.
After the report card was released, the parents' meeting, Intel's management talked about the impact of artificial intelligence computers on the performance. They mentioned that the company decided to quickly make more powerful artificial intelligence computer CPUs, which made the ability to make money not reach the expected level.
A more dangerous signal
Intel recently painted a big picture for everyone, saying that in the third quarter of 2024, they can probably make between $12.5 billion and $13.5 billion, but this may be 11.2% less than the same period last year, which is far lower than the $14.38 billion that analysts expected. Moreover, they also warned that they might lose money in the third quarter, losing $0.03 per share, while analysts originally thought they could make $0.3. In addition, their estimated gross margin is only 38%, much lower than the market's expectation of 45.5%.
Intel also said that they are now making drastic changes to the research and development and business of artificial intelligence computer chips, which may affect their ability to make money, and the gross margin is estimated to not increase much in the short term.
After this performance forecast came out, the financial big guys on Wall Street were not very happy. Companies like Morgan Stanley, HSBC, Deutsche Bank, and Bernstein have all cut the target price of Intel's stock a lot. Tejas Dessai, an analyst at Global X, also said that Intel's data center business has been overshadowed by artificial intelligence chips, and they are still trying to adapt to the new foundry model, which is quite difficult.
In order to save money, Intel has decided to lay off a large number of employees, more than 15% of the staff have to leave, about 15,000 people, which is the first time in the industry. CEO Gelsinger told the employees that the company plans to save $10 billion by 2025, and most of the cost-saving measures will be completed before the end of this year.Intel also plans to cut R&D, marketing, and other administrative expenses to $20 billion by 2024, and further reduce them to $17.5 billion by 2025. They also plan to reduce the total capital expenditure by more than 20% in 2024, controlling it between $25 billion and $27 billion.
There is another significant move: Intel announced that starting from the fourth quarter of this year, they will no longer pay dividends, which is the first time since 1992. Wall Street analysts warned that this decision might further impact Intel's stock.
Although Intel is not doing well currently and the market is not optimistic about them, they still stated that as their cash on hand increases, they will strive to pay dividends and continue to advance the company's transformation plan. It is still uncertain about Intel's future, but the management is quite optimistic about the company's long-term development.
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