Intel again in loss and in problems. Sales fell short of expectations, the forecast for the future is weak

Intel’s financial results for the first quarter of the year (ie Q1 2024, January to March) are here. Intel issued this forecast for the period in January: revenue should have been $12.7 billion, plus or minus $500 million (or $12.2-13.2 billion). We predicted last time that the result would turn out to be a bit better, as usual, because Intel typically set the forecast conservatively, only to beat it.

However, there is an unpleasant surprise for Intel and shareholders, as the result ended up only very slightly above the middle of the forecast – the company had sales $12.724 billion. The consensus of analysts expected slightly higher sales, although this is not a significant drop in sales.

But the significance is that normally Intel keeps a reserve so that the results show an advance of the estimate, but this time the results really had to use the reserve. But it must be said that this is a 9% improvement over the previous year, when in Q1 the sales were only $11.7 billion.

Gross margin was 41%, a far cry from the 55-60% of the fat years and a lower margin than AMD (47% last quarter), even though AMD is a fabless company and Intel’s own factories used to be net-margin advantage.

The company had a loss in the first quarter – operating loss was $1.069 billion, net loss after tax bonus was $437 million. The loss is 9 cents per share. But again, it’s better than year-over-year, a year ago Intel posted a gross margin of just 34.2% and a loss of $2.8 billion. Despite the loss, Intel paid a half-billion-dollar dividend in the first quarter and will continue to do so in the second quarter (paying out 12.5 cents per share).

Intel financial results for Q1 2024: Development of the company’s sales over the last five quarters

Author: Intel

Individual segments: Servers at the bottom, the PC market feeds the company

As usual, it’s interesting to see the numbers for each division. Although at one point Intel believed that over 50% of its sales were “data-centric”, now the PC market is in the vast majority (59%) again. Client Computing Group it achieved sales of $7.533 billion and operating profit of $2.645 billion. Basically, he is now the breadwinner of the company, and it is important that its sales have increased by 31% year-on-year.

Laptop processors make it $4.681 billion, desktops almost half the market at $2.461 billion.

Intel Q1 2024 financial results – major divisions

Author: Intel

In contrast, server processors and products (division Data Center and AI) fell to only $3.036 billion (this is nevertheless a 5% YoY growth against a very weak Q1 2023). So here you can see the significant effect of competition on the previously much larger Xeon business, at its peak this division had over $7 billion in sales. Operating profit was just $482 million.

Intel Q1 2024 Financial Results – Altera and Mobileye

Author: Intel

Division Network and Edge had revenue of $1.364 billion (down 8% year-over-year) and operating profit of $184 million. FPGA division Altera (which Intel wants to spin off again) had revenue of $342 million (down 58%) and a loss of $39 million, automotive chips Mobileye revenue of $239 million (down 48%) and a loss of $68 million.

Intel Q1 2024 financial results – individual divisions

Author: Intel

For the first time, a view of the factories as a separate division

But the most interesting thing is that for the first time Intel lists separate numbers for its fabs as a separate division, which allows them to be thought of as a separate unit that (virtually for now) sells its services to the Intel divisions developing the products themselves, as if they were fabless companies. And in the future, it should also serve external clients neutrally and with the same conditions, while those product divisions could spend the money they are now sending for production to Intel factories elsewhere. We wrote more about this strategy here:

In Q1 2024 by factory close (Intel Foundry) had revenue of $4.369 billion (year ago in Q1 2023 it would have been $4.831 billion). If they were actually taken as a separate business, they would have a loss of $2.474 billion. So Intel now has to subsidize the factories from the profit that the product divisions have, the imaginary internal price that they pay (and which should also be paid by external clients) is not high enough for the factories to be able to operate independently.

But it should be remembered that Intel is currently undergoing a large investment plan to expand its capacities and catch up with technological slippage, so the loss rate is also affected by this. In the long term, Intel will logically want to achieve such an economic scale (which is only possible with external clients) that the Intel Foundry has a positive operating margin.

The stated “revenue” for Intel Foundry is largely internal in origin, so it’s not money that makes up part of that $12.7 billion in revenue, that money is already factored into the price of processors sold. Intel says this is about $4.353 billion in Intel Foundry revenue. So far only minimal amounts are coming from external sources, $16 million in Q1 2024 (it was $100 million in Q1 2023).

Intel’s factories alone would be the 9th largest silicon company

Intel also showed the revenue development of the Intel Foundry division during this virtual separation. You can see the results for the last five quarters in this graph – the blue bars show the sales, the yellow bars below the loss, where the division has been consistently, but its amount moves differently.

Intel Q1 2024 Financial Results – Intel Foundry

Author: Intel

We recently had an article on the ranking of semiconductor companies by sales, which also included foundry manufacturers such as TSMC or UMC. This chart allows you to include Intel’s virtually separate manufacturing base in this ranking. In 2023, according to him, Intel Foundry had sales of around $18.9 billion (and a loss of $7 billion). With these sales, Intel’s factories would rank 9th globally, ahead of Infineon ($17.364 billion) and just behind AMD ($22.68 billion in revenue).

The outlook for Q2 is also not much

Annoyingly for Intel, the forecast for the now ongoing second quarter is also not very high. Intel expects $13.0 billion in revenue plus or minus 500 million (which it reports as $12.5-13.5 billion).

Intel Q1 2024 financial results, Q2 2024 outlook

Author: Intel

It is a question of whether the regular overtaking of the estimate will appear this time, so we will not assume that now. Gross margin is expected to be slightly smaller (40.5%) and the company expects a slight loss (5 cents per share, so it will be milder than in Q1).

Source: Intel