


Intel: Layoffs and cost reductions show results, but growth has become a "major challenge"?

Intel released its Q4 2024 financial report (ending December 2024) after the U.S. stock market closed on January 31, 2025, Beijing time. The key points are as follows:
1. Core Data: Operational performance has improved. Intel achieved revenue of $14.26 billion in Q4 2024, a year-on-year decline of 7.4%, meeting market expectations ($13.82 billion), primarily impacted by declines in client business and data center and AI business. Intel's net profit for Q4 2024 was -$126 million, close to breakeven. From an operational perspective, the company's operating profit has rebounded, mainly due to effective cost reductions.
2. Business Performance: AI business shows no breakthroughs. Client business and data center and AI business are the largest revenue sources for $Intel(INTC.US), together accounting for over 80%.
1) Client Business: This quarter, client revenue was $8.017 billion, a year-on-year decline of 9.4%, meeting market expectations ($7.88 billion). Meanwhile, the PC industry saw a shipment increase of 3.4%, while Intel's related business declined by 9.4%, indicating further erosion of Intel's market share;
2) Data Center and AI Business: This quarter, revenue from data center and AI business (including Altera) was $3.816 billion, a year-on-year decline of 4.2%, in line with market expectations ($3.813 billion). The company's traditional server and Altera businesses both declined this quarter and did not benefit from the growth of the AI industry chain.
3. Intel's Performance Guidance: For Q1 2025, expected revenue is $11.7-12.7 billion (market expectation $12.84 billion) and GAAP gross margin of 33.8% (market expectation 36.4%). Both revenue and gross margin guidance are slightly below market expectations.
Overall View of Dolphin: Intel's financial report is quite good.
Although the company's revenue and gross margin both declined this quarter, they met market expectations. This is mainly because the market had already anticipated the weak performance of the client business and the lack of growth in the data center and AI business. Moreover, the company did not deliver a "worse" performance in this financial report, which is still considered good.
For the next quarter, the company expects revenue of $11.7-12.7 billion and a GAAP gross margin of 33.8%. Although both core data points have declined, the overall performance is acceptable. As long as it does not "collapse," the market has a high tolerance for the current performance of the company's business For Intel, the current market is most concerned about the progress of internal reforms. The company replaced its CEO in December and initiated business adjustments. In the face of operational challenges, the company's recent main tasks are to cut capital expenditures and reduce costs through layoffs, thereby improving its operational situation.
From the quarterly financial report, this wave of actions has indeed shown results. The number of employees has been significantly reduced from 124,000 at the end of the last quarter to 109,000. The layoffs and cost reductions have had an immediate effect on the company's operating expenses. The company's core operating expenses decreased by $320 million quarter-on-quarter this quarter, bringing a noticeable gain to the company's operating profits.
Intel's stock price has been declining since 2021, and during the AI wave, the company did not benefit significantly. As the company has struggled to enter the GPU market, its share in the CPU market has also been gradually lost. The continuously declining stock price has gradually eroded confidence in the company's entry into the AI incremental market. The current market focus has shifted to whether the company can stabilize its fundamentals and achieve a recovery in performance. The current layoffs and cost reductions are also the main focus of the company's internal reforms.
Overall, although Intel's business does not show significant growth, the core operating expenses have begun to narrow. In the short term, the company's performance will still hover at a low level, making it difficult to see significant improvement. For medium to long-term growth, attention still needs to be paid to the company's breakthroughs and progress in computing power chips or foundry fields. If the company continues to struggle to enter the main battlefield of computing power, then the cost-cutting measures will only stabilize the company's declining trend and will not bring more growth space.
Here is Dolphin's specific analysis of Intel:
1. Core Data: Improvement in Operating Performance
1.1 Revenue: Intel achieved revenue of $14.26 billion in the fourth quarter of 2024, a year-on-year decrease of 7.4%, close to the upper limit of the company's guidance ($13.3-14.3 billion). Although the fourth quarter is often a relatively peak season for the company, quarterly revenue still showed a year-on-year decrease, mainly affected by declines in client business and data center and AI business.
1.2 Gross Profit and Gross Margin: Intel achieved a gross profit of $5.584 billion in the fourth quarter of 2024, a year-on-year decline of 20.8%. From the perspective of various businesses, the company's current profits still mainly come from the contribution of the PC client business.
In terms of specific gross margin, the company's gross margin this quarter is 39.2%, significantly rebounding quarter-on-quarter, better than market expectations (36.5%). The "flash crash" of the company's gross margin in the last quarter was mainly affected by a one-time impairment charge (approximately $3.1 billion). Excluding this impact, the actual operating gross margin in the last quarter was 38.4%, and the gross margin this quarter has still improved.
1.3 Operating Expenses: Intel's operating expenses in the fourth quarter of 2024 were $5.172 billion, an increase of 15.9% year-on-year. Excluding restructuring and other impacts, the company's core operating expenses (R&D + sales management) have significantly declined, mainly due to the company's layoffs and cost-cutting measures (the number of employees decreased from 124,000 at the end of the previous quarter to the current 108,900).
From the core perspective:
1) R&D Expenses: This quarter's R&D expenses were $3.876 billion, a year-on-year decline of 2.8%, with an R&D expense ratio of 27.2%. The company began personnel adjustments in the third quarter, and R&D expenses have decreased quarter-on-quarter this quarter, but it remains the largest item in the company's operating expenses;
2) Sales Management and Administrative Expenses: This quarter's sales and management expenses were $1.239 billion, a year-on-year decrease of 23.4%; the sales management expense ratio decreased to 8.7%; the company's sales and management expenses have decreased significantly, mainly due to recent layoffs and other measures;
3) Restructuring and Other Expenses: This quarter, the company's restructuring and other expenses were $57 million. The reason for the "positive offset effect" in this expense category in the same period last year was due to the company's good progress in litigation and other events. This quarter, restructuring and related expenses remained relatively stable.
1.4 Net Profit: Intel's net profit in the fourth quarter of 2024 was -$126 million, returning to the breakeven point.
The company's massive loss in the previous quarter was mainly due to the company recognizing multiple one-time expenses (including impairment expenses for production lines and other manufacturing assets, restructuring expenses, goodwill and intangible asset valuation allowances, and deferred tax asset valuation allowances), totaling $18.5 billion, which had a significant impact on performance .
From the perspective of operational performance continuity, the company's operational profit in the previous quarter was -$140 million, while the operational profit in this quarter increased to $412 million, mainly benefiting from the recovery of the company's gross margin and the effects of layoffs and cost reductions.
II. Detailed Data Situation: AI Business Shows No Breakthrough
Intel's business consists of client business, data center and AI, networking and edge domains, Mobileye, and wafer foundry services. Among them, client business and data center and AI business are the company's largest sources of revenue, accounting for over 80% combined The company will adjust its financial statements starting from the first quarter of 2024, separating Altera's business revenue from the data center and AI segments, and rewriting Intel's external foundry revenue as wafer foundry revenue and internal business offsets. For the continuity of data, Dolphin will still analyze based on the original business structure.
2.1 Client Revenue
Intel's client revenue reached USD 8.017 billion in the fourth quarter of 2024, a year-on-year decline of 9.4%, which is basically in line with market expectations (USD 7.88 billion). Due to the high proportion of client business, this is the main factor for the company's revenue decline this quarter.
From IDC's industry data, global PC shipments showed a steady increase this quarter. Global PC shipments reached 69.3 million units this quarter, a year-on-year increase of 3.4%.
When compared together. PC processor market: industry-wide shipments +3.4%; Intel's PC segment quarterly revenue -9.4%. This shows that while the PC industry demand is steadily increasing, Intel's related business continues to decline, and the company is still losing relevant market share.
2.2 Data Center and AI
Intel's data center and AI revenue reached USD 3.816 billion in the fourth quarter of 2024, a year-on-year decline of 4.2%.
After separating the data center and AI business from Altera's business, the company's pure data center and AI business revenue was only about USD 3.387 billion this quarter, a year-on-year decline of 3.3%, mainly due to the continued poor demand for traditional servers this quarter.
For data continuity, Dolphin will still look at the original business segmentation. The company's data center and AI business overall declined by 4.2% year-on-year. Among them, traditional server business declined by 3.3%, and Altera business declined by 11%. Compared to rapidly growing peers (NVIDIA & AMD), Intel's business has also seen a decline.
Currently, the demand in the data center and AI market is mainly concentrated in the GPU and ASIC fields. Even the new CPU demand driven by AI has been filled by competitors' bundled proprietary CPU/GPU product combinations. As Intel has yet to conquer the GPU market and ASIC players are starting to enter, Intel is moving further away from the main track of the data center. For the data center market, the main focus is on the capital expenditure of the four core cloud vendors (Microsoft, Google, Meta, and Amazon). So far this quarter, only Meta and Microsoft have announced their latest capital expenditure, with a combined capital expenditure of $37.4 billion, a year-on-year increase of 92.7%. In addition, both companies have a positive outlook for future capital expenditures, with Dolphin estimated that the combined capital expenditure of the two companies will still see nearly 40% growth next year.
Although there is still good demand in the data center market, Intel has basically exited the competition in the incremental market.
2.3 Network and Edge Domain
Intel's revenue from the network and edge domain reached $1.623 billion in the fourth quarter of 2024, a year-on-year increase of 10.3%, accounting for only 10% of total revenue. After customer inventory returned to normal levels, the company's network and edge domain business has begun to warm up from the bottom, with the company shifting its focus to networking and telecommunications.
2.4 Other Major Businesses
1) Intel's Mobileye revenue reached $490 million in the fourth quarter of 2024, a year-on-year decline of 23.1%, accounting for less than 5% of total revenue. The decline this quarter was influenced by a more than 50% reduction in shipments to China, but the company still maintains its full-year revenue guidance.
2) Intel's wafer foundry service revenue reached $191 million in the fourth quarter of 2024. The company has re-disclosed its wafer foundry business this quarter, revealing its wafer business and internal offsets. Dolphin combines both to estimate the company's external foundry service situation. This quarter, the company's external foundry services saw a rebound, but still accounted for only 1.3%, having a minimal impact on the company's performance.
Dolphin Investment Research on Intel Article Review:
On November 1, 2024, Intel earnings report commentary: Intel: Can it stand up again after shedding the "heavy burden"?
On August 2, 2024, Intel earnings report commentary: A Total Collapse, Intel's "Pipe Dream" April 26, 2024 Intel Earnings Report Review: Intel: The Marginalized AI Bystander
January 26, 2024 Intel Conference Call: Intel 3, Is It an Opportunity? (Intel Q4 2023 Conference Call)
January 26, 2024 Intel Earnings Report Review: Intel: The Throne of Processors No Longer, AI Battle Fails to Form an Army
January 17, 2024 Intel Deep Dive: Intel: AI PC, Is It the Lifeline for the "Toothpaste Factory"?
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