(Bloomberg) — Shares of Intel Corp. tumbled 8.5% on Friday after Chief Executive Officer Lip-Bu Tan sparked concerns that he was more focused on cost cutting than restoring the chipmaker\u2019s technological edge.<\/p>\n
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As part of Intel\u2019s second-quarter report, Tan said the company will cancel some factory projects and take a more conservative approach to future spending. Tan called the investments begun under his predecessor, Pat Gelsinger, excessive and unwise.<\/p>\n
\u201cI do not subscribe to the belief that if you build it, they will come,\u201d he said on a conference call with analysts.<\/p>\n
At the same time, Tan struggled to give a clear picture of how he\u2019ll make the company more competitive again. Gelsinger had embarked on an ambitious plan to turn Intel into a chip foundry, a business that makes products for outside clients. A key part of that was moving toward a more advanced production technique called 14A. But Tan signaled Thursday that Intel will only roll out that technology tentatively.<\/p>\n
The company will add large-scale capacity for 14A when Tan is convinced he has enough customers committed to using it, he said on the call. That didn\u2019t sit well with investors, who sent the shares down to $20.70 in New York on Friday, the stock\u2019s biggest single-day decline in more than three months.<\/p>\n
\u201cThe idea you might step away from 14A if you can\u2019t get someone to invest in it is a problem,\u201d said Wedbush Securities Inc. analyst Matt Bryson.<\/p>\n
The crux of the concern: If Intel stops introducing new manufacturing technology, it\u2019s bowing out of the race for leadership of the chip industry \u2014 and closing the book on what made it untouchable for decades.<\/p>\n
Intel\u2019s woes have previously spurred speculation that it might be acquired or broken up, though there\u2019s no clear path to a major deal. Possible suitors for Intel\u2019s factory division, such as Taiwan Semiconductor Manufacturing Co., have backed away from the idea. Tan also has said he aims to keep Intel\u2019s manufacturing and product-design businesses together, though he does plan to offload smaller divisions.<\/p>\n
Intel confirmed on Friday that it aims to spin off its networking group into a standalone business. The company said it has begun identifying strategic investors, without naming them. CRN previously reported on the plan.<\/p>\n
In its earnings report, Intel gave an upbeat third-quarter sales forecast while missing estimates for some profit measures. Margins will be tighter than Wall Street anticipated in the period, and Intel only expects a break-even quarter. Analysts had projected a 4-cent gain on that basis.<\/p>\n
In the second quarter, revenue amounted to $12.9 billion, little changed from a year earlier. Analysts had projected $11.9 billion. The company posted a loss of 10 cents a share, compared with an estimated profit of 1 cent.<\/p>\n
Intel\u2019s stock had been up 13% this year through Thursday\u2019s close. Though that gain was in line with most chip stocks in 2025, rivals Nvidia Corp. and Advanced Micro Devices Inc. have performed better \u2014 lifted by their artificial intelligence prospects.<\/p>\n
Tan\u2019s focus is getting Intel\u2019s financial house in order, a task that has included thousands of layoffs and the slashing of capital spending. The company said Thursday that already-paused factories in Germany and Poland won\u2019t go ahead, and progress at another project in Ohio will be slowed.<\/p>\n
Intel will reduce capital expenditures on new plants and equipment this year and plans to make further cuts to that budget next year. The company will spend about $18 billion this year and less in 2026, executives said.<\/p>\n
Tan, who took the CEO job in March, acknowledged that he still has work to do to make the company more competitive in its main markets: processors for personal computers and servers. He\u2019s also still crafting Intel\u2019s plan to crack the AI chip industry \u2014 an area where Nvidia dominates.<\/p>\n
Tariff Effect?<\/p>\n
Third-quarter sales will be $12.6 billion to $13.6 billion, Intel said. Analysts on average had projected a number at the low end of that range.<\/p>\n
The company has benefited from a resurgence in the PC industry, driven in part by manufacturers\u2019 efforts to build up inventory before tariffs hit. But the Silicon Valley pioneer has lost market share to rivals and is struggling to attract foundry clients.<\/p>\n
Intel\u2019s layoff plans \u2014 first announced during the previous quarterly report \u2014 will reduce staff by 15%, Intel said. And the company expects further cuts through attrition and the splitting off of business units, Chief Financial Officer Dave Zinsner said in an interview.<\/p>\n
The chipmaker aims to end the year with 75,000 employees, down more than 20% from the end of the June quarter. Bloomberg News reported in April that Intel was looking to cut its workforce by roughly that amount.<\/p>\n
Analysts have expressed concern that PC demand will decelerate after a strong first half. The threat of tariffs imposed by the US \u2014 and other nations in retaliation \u2014 may have prompted PC makers to rush to stock up ahead of prospective cost spikes, the company warned last quarter.<\/p>\n
Economic Fears<\/p>\n
Demand was better than expected last quarter because an economic slowdown didn\u2019t materialize, Zinsner said. But the company is aware that some demand might have stemmed from consumers and businesses trying to avoid tariffs.<\/p>\n
\u201cWe felt like tariffs might be a headwind in the second quarter and would further unsettle the economy,\u201d he said. \u201cNone of that transpired.\u201d<\/p>\n
Intel\u2019s client computing division had revenue of $7.9 billion last quarter, topping the average prediction of $7.3 billion. Data center sales were $3.9 billion, compared with a $3.7 billion estimate. The foundry division generated revenue of $4.4 billion, in line with projections.<\/p>\n
Intel had previously said it planned to cut operating expenses to about $17 billion this year and $16 billion in 2026. The Santa Clara, California-based company remains on track for the 2025 cuts, Intel said Thursday.<\/p>\n
Tan\u2019s predecessor, Gelsinger, had concentrated on expanding Intel\u2019s factory network, once its key competitive advantage. He laid out plans to spend tens of billions of dollars on making its plants the best in the industry again, a status that would force rivals to use it as an outsourced provider of manufacturing.<\/p>\n
\u201cWe will take a fundamentally different approach to building our foundry business,\u201d Tan said in a memo to staff Thursday. \u201cOver the past several years, the company invested too much, too soon \u2013 without adequate demand. In the process, our factory footprint became needlessly fragmented and underutilized. We must correct our course.\u201d<\/p>\n
For now, the biggest user of its factories is Intel\u2019s internal design teams. Some of Intel\u2019s best offerings now contain components made by TSMC, adding more pressure to its margins.<\/p>\n
Narrower Margins<\/p>\n
Adjusted gross margin \u2014 the percentage of sales remaining after excluding the cost of production \u2014 was about 30% in the second quarter and will be 36% in the current period. That\u2019s close to half of what it was when Intel\u2019s chips dominated the data center market. Nvidia has margins above 70%.<\/p>\n
Intel\u2019s Zinsner said the company isn\u2019t yet ready to unveil AI-related gear. The chipmaker is focusing on the development of products that will fit in unserved parts of the market.<\/p>\n
Ultimately, Intel needs to figure out how it can benefit from artificial intelligence, Emarketer analyst Jacob Bourne said in a note.<\/p>\n
\u201cA fundamental market truth isn\u2019t going away,\u201d he said. \u201cGlobal demand for AI chips continues to soar, and Intel must find its footing in that value chain.\u201d<\/p>\n
(Updates shares starting in first paragraph.)<\/p>\n
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