Intel suffers one of its worst days in 40 years as stock plunges 26% after earnings miss

Intel’s stock price nosedived more than 25% on Friday trading, one its worst trading days in 40 years.

The company lost roughly $30 billion in market value after it gave a disappointing forecast and said it would cut 15% of its workforce, deepening worries about its ability to catch up with Taiwan’s TSMC and other chipmakers.

“Intel’s issues are now approaching the existential in our view,” Bernstein analyst Stacy Rasgon said.

The layoffs – most of which the company said would take place by the end of 2024 – are part of a $10 billion cost-cutting plan meant to turn around the computer giant.

“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” CEO Pat Gelsinger said in a note Thursday.

“Our revenues have not grown as expected — and we’ve yet to fully benefit from powerful trends, like AI. Our costs are too high, our margins are too low,” he said.

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

The California-based company peaked in the 1990s thanks to the success of the PC. But since the early 2000s, Intel has been facing more intense competition for a share of the market.

Intel reported a big hit to its income, suffering a $1.6 billion net loss in the second quarter compared to net income of $1.5 billion in the same period last year.

Gelsinger said the company’s focus on Core Ulta PC chips – meant to handle AI – caused the loss, but signaled the move would balance out in the long-term.

The company expects $20 billion in cuts this year on an adjusted basis, and predicted $17.5 billion in cuts in 2025 and more to come in 2026. 

Rasgon said Intel could add $40 billion in cash to its balance sheet by the end of 2025 through the moves, as well as subsidies and partner contributions.

The cost reductions are meant to improve the company’s liquidity and reduce its debt balance, Intel said in a statement.

The plan to skimp on costs comes just a few months after President Joe Biden announced an agreement to provide Intel with $8.5 billion in funding and $11 billion in loans for computer chip factories in Arizona, New Mexico, Oregon and Ohio through the CHIPS Act.

Intel was reportedly the largest beneficiary of the CHIPS Act.

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

And it reported revenue of $12.83 billion, down 1% since last year and below expectations of $12.94 billion.

“We previously signaled that our investments to be fine and drive the AI PC category would pressure margins in the near-term,” Gelsinger said. “We believe the trade-offs are worth it. The AI PC will grow from less than 10% of the market today to greater than 50% in 2026.”

Intel took hits from other financial challenges, like quickly moving its Intel 4 and 3 chip wafers from an Oregon plant to one in Ireland. 

CFO Dave Zinsser said the plant switch will raise costs but balance out in the long-term and cause a wider gross margin. 

And while Intel still holds a majority share of the market – Intel processors account for 71% of laptop central processing units, according to Statista – it has faced increasing price competition.

Intel’s Client Computing Group, which makes PC chips, reported $7.41 billion in revenue – up 9% and near StreetAccount analysts’ expectation 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 total year.

Intel’s Data Center and AI unit reported $3.05 billion in revenue, down 3% and below StreetAccount estimates of $3.14 billion.

Intel forecast third-quarter earnings that fall relatively in line, including expectations of revenue between $12.5 billion to $13.5 billion and a net loss in earnings per share of $0.03.

Zinsser said revenue from the data center unit should grow in the second half of the year. 

He said challenges include weaker consumer and commercial spending, as well as a big push on cloud-based servers for AI that forced Intel to reduce its total addressable market for the year.

During the second quarter in June, Intel and asset management firm Apollo said they reached an agreement in which Apollo would invest $11 billion to acquire a 49% stake from Intel in a joint venture project involving the Ireland plant.

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

Intel revealed in May that the Commerce Department was revoking its export licenses to ship chips to a customer in China, likely Chinese tech company Huawei Technologies, according to a Reuters report.

Intel then said it expected revenue to stay within its range of $12.5 billion to $13.5 billion for the second quarter, but on the lower end of the range.