Strong Earnings Overshadowed by Manufacturing Uncertainty
Intel’s stock tumbled more than 8% on Friday, despite better-than-expected second-quarter earnings. The sharp decline came as investors reacted to the company’s plan to slash foundry costs and reconsider its investment in chip manufacturing, raising fresh doubts about the viability of Intel’s turnaround efforts.
The chipmaker reported adjusted earnings of 10 cents per share, surpassing analysts’ estimates of one cent, and issued an optimistic third-quarter sales forecast. However, a simultaneous Securities and Exchange Commission filing revealed that Intel may “pause or discontinue” its foundry operations altogether if it fails to secure key customers for its next-generation 14A chip process.
CEO Warns of ‘No More Blank Checks’
In a memo to employees, CEO Lip-Bu Tan, appointed in March, emphasized the need for discipline in capital spending. He said the 14A node development would only proceed based on confirmed demand, signaling the end of speculative investments. Tan stressed that Intel would no longer continue funding underutilized facilities, citing overinvestment in recent years.
Intel has already canceled planned chip plants in Germany and Poland and slowed progress at its Ohio site. Tan acknowledged the challenges faced since taking the helm, highlighting widespread layoffs affecting 15% of Intel’s workforce, which will bring headcount to 75,000 by year-end.
Losses Mount as AI Race Intensifies
The company posted a net loss of $2.9 billion, or 67 cents per share, compared with $1.61 billion, or 38 cents per share, in the same quarter last year. An $800 million impairment charge related to unused manufacturing tools further strained results. Intel’s inability to compete meaningfully in the AI chip market, currently dominated by Nvidia, has led to a 60% stock decline in 2024 — its worst year ever.
While some analysts view Intel’s scaled-back foundry ambitions as a necessary correction, concerns remain about the company’s future competitiveness. Barclays analysts warned that lack of customer commitments would further delay product development and deter broader adoption. JPMorgan, on the other hand, described the decision as a “positive step” but flagged persistent market share erosion as a risk.
Investor Confidence in Foundry Bet Wanes
Intel’s foundry strategy was meant to diversify its revenue base by manufacturing chips for external clients. However, the company has failed to attract major partners to date. The prospect of exiting the foundry business altogether could reshape Intel’s long-term strategy and capital allocation plans.
Tan admitted that Intel’s previous aggressive expansion was not matched by demand, leading to a fragmented and underutilized factory network. He pledged to focus on efficiency, customer alignment, and execution to regain investor trust and stabilize the business.
