Wall Street embraces Intel’s tentative turnaround
Shares went up as much as 8% on Friday, even as the company posted its biggest quarterly loss on record.
Intel finally had its one step forward after three steps back over the past few months. Shares climbed as much as 8% on Friday, after the company reported better-than-expected third-quarter earnings and fourth-quarter guidance.
Despite the beat, so many of Intel’s headline numbers weren’t pretty on the surface: revenue declined 6% year over year. The company lost $16.99 billion, by far its biggest three-month dose of red ink ever, compared with net earnings of $310 million a year ago. The stock has tumbled more than 50% so far this year.
We previously wrote about how Intel missed the memo about the chip boom after a long history of management missteps. Lackluster earnings from last quarter propelled the stock to plunge nearly 30%, logging its biggest one-day drop in almost 50 years. The company was then under pressure to defend itself from private-equity firms and competitors that were eyeing a takeover, such as Apollo and Qualcomm, respectively. In August, the company committed to delivering a $10 billion cost reduction plan in 2025.
Some of those cost-reduction activities were already underway. In the latest quarter, Intel recognized $2.8 billion in restructuring charges and $15.9 billion in impairment charges, the big cause of all those losses. An earlier filing revealed a slew of approved activities, including reducing the head count by 16,500 employees and real-estate exits.
Intel CEO Pat Gelsinger alluded to early progress in its effort to manufacture chips for other companies, including an Amazon partnership, as sources for more external funding. The company also revealed plans to turn its foundry business into an independent subsidiary; this way, the design and manufacturing of the chips are separated, potentially driving more interest from outside customers like competing chip designers who were previously hesitant about using Intel’s foundry.
Still, there were doubts about whether the foundry business can stand on its own due to the capital-intensive nature, The New York Times reported. In the latest quarter, the foundry business saw revenue drop 8%. Other challenges, including the lack of a competitive AI accelerator product compared to rivals like AMD, will continue to dampen Intel’s future prospects, Bank of America analysts said in a note.
