Intel Q125 Earnings. Outlook Disappoints As LBT Shows Senior Executives The Door

there's been a lot to unpack from Intel in recent weeks

Intel this week reported Q125 revenues of $12.7 billion, down 0.4% YoY, down 11% QoQ but still $500 million above the guided midpoint, precisely the same beat as in the prior quarter.

Non-GAAP gross margin was 39.2%, approximately 3 percentage points higher than guided, based on

much stronger-than-expected demand for Raptor Lake combined with improved cost for Meteor Lake

The strength in demand for Raptor Lake, which is manufactured on Intel 7, at the expense of both Meteor & Lunar Lake, was one of the biggest surprises on the earnings call and it has negative implications for Intel’s AI PC ambitions over the coming quarters. The fact that this wasn’t built into the GM forecast speaks volumes to the extent to which Intel has its finger on the pulse of what its customers are actually looking for. More on this anon.

Looking ahead, Intel forecasted current quarter revenues of $11.8 billion at the midpoint, this time extending the range from $1 billion in the prior quarter to $1.2 billion.

As a result, we are forecasting a wider-than-normal Q2 revenue range of $11.2 to $12.4 billion, down 2-12% sequentially

As to the reason for this wider range, and downward guidance, we got the following:

Historically, average sequential growth in Q2 has been roughly flat with Q1. However, the very fluid trade policies in the U.S. and beyond, as well as regulatory risks have increased the chances of an economic slowdown, with the probability of a recession growing. This makes it more difficult to forecast how we will perform for the quarter and for the year, even as the underlying fundamentals supporting growth I discussed earlier remain intact.

While we have offsets including a global, highly diversified manufacturing footprint to help mitigate tariffs, we will certainly see costs increase, and we feel it prudent to anticipate a TAM contraction. The biggest risk we see is the impact of a potential pullback in investment and spending as businesses and consumers react to higher costs and the uncertain economic backdrop.

So there you have it. Tariffs and trade policies, as they currently stand, are on track to disrupt the semiconductor industry just like most other industries. For now it’s more about uncertainty about what the future brings. As the weeks and months go by, that inevitably starts to translate into actual impacts to the bottom line.

Quite apart from the earnings call, Intel has been much in the news over the course of the past week, beginning with a report from Bloomberg that the company was planning to lay off some 20% of employees, details here.

(Reuters) -Intel is set to unveil plans this week to slash more than 20% of its workforce, in a move to streamline operations and reduce bureaucratic inefficiencies, Bloomberg News reported on Tuesday, citing a person with knowledge of the matter.

Then there were two consecutive reports, outlining changes to Intel’s executive leadership team, details here and here. Finally, there was Lip Bu Tan’s (LBT) email to all employees, issued just after earnings were released, but prior to the earnings call, details here.

Before we get into these, and other details from the earnings call, I just want to circle back to a comment I made in this recent post regarding Intel:

There, in the closing paragraph, I noted the following:

I imagine he will also be looking at the ELT scorecards for 2024 and wondering what it’s going to take for him to prevent a repeat outcome in 2025. He’s got big changes to make at the top. That’s started with the BoD, but there’s a lot more to do where that came from. Let’s see…

My point here is that one of the key things to watch for as LBT begins the mammoth task of turning around Intel’s fortunes, will be his willingness to exit senior executives from the company, i.e. those people directly and collectively responsible for its current predicament. Based on his actions over the past couple of weeks, it would appear that he is very willing indeed, and I expect many more departures to follow. Let’s dig in…