Shares of semiconductor pioneer Intel were down 27% during mid-day trading Friday after it missed revenue expectations in its second-quarter earnings and announced layoffs.
Intel reported revenue of $12.8 billion in the second quarter of 2024 — down 1% from the previous year. Wall Street had expected $12.9 billion, according to FactSet analyst estimates.
“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones,” Intel chief executive Pat Gelsinger said in a statement. “Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM [integrated device manufacturing] 2.0 transformation.”
The company’s missed profit expectations partly due to Intel’s decision to “more quickly ramp” its Core Ultra artificial intelligence CPUs, or core processing units, that can handle AI applications, Gelsinger said on the company’s earnings call.
“We previously signaled that our investments to define 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.”
The chipmaker set third-quarter revenue expectations at between $12.5 billion and $13.5 billion, while Wall Street is setting its estimate at $13.4 billion, according to FactSet.
Intel said it is cutting spending, including by laying off more than 15% of employees. The layoffs are part of Intel’s plan to reduce capital expenditures by over $10 billion in 2025. The company’s cost-reduction plan is part of moving “toward a sustainable business model” to support its long-term strategy, Intel said.
“Simply put, we must align our cost structure with our new operating model and fundamentally change the way we operate,” Gelsinger wrote in a memo to employees. “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. We need bolder actions to address both – particularly given our financial results and outlook for the second half of 2024, which is tougher than previously expected.”
The company’s shares are down 55.7% so far this year. Meanwhile, the Dow Jones Industrial Average plunged 945 points, or 2.3%, to 39,430, during mid-day Friday trading. The Nasdaq also fell 3%, and the S&P 500 was down 2.6%.
