CEO Patrick Gelsinger was forced to admit that Intel’s second-quarter earnings were “below the benchmarks previously set for the company,” so it’s no surprise that the processor giant’s share price has fallen by more than 10%.
It should be remembered that Intel’s total revenue in the second quarter decreased by 17%, in the server segment by 16%, and in the client segment by 25% compared to the same period last year. The profit margin has narrowed to 36.5%, while in the current quarter Intel expects to increase it to only 46.5%, and only in the fourth quarter to reach a more comfortable 51%. Finally, net losses of $454 million, plans to cut capital expenditures by $4 billion, and modest revenue expectations for the current quarter (no more than $16 billion) only deepened investor pessimism. They weren’t even convinced by Intel’s attempt to gradually raise dividend payments from a quarterly level of $1.5 billion.
At the time of writing, Intel shares were trading at $36.11 per share, and Baird’s analysts lowered their target price from $60 to $40, citing Intel’s inability to quickly offset weak demand in the PC market. income is still significantly dependent. The delay in the supply of Sapphire Rapids server processors, according to forecasters, will allow AMD to strengthen its position in the server sector in the second half of this year.
Susquehanna analysts even used a less typical argument to support their thesis about the long-term nature of Intel’s battle in the server and consumer segments. According to them, Arm architecture processors will successfully eliminate Intel products in both market segments. Moreover, in the PC segment, AMD will continue to lose market positions to Intel, although at a slower pace than in previous years. The release of the 5nm EPYC processors of the Genoa family will only help strengthen AMD’s position in the server segment, given the delay in the start of mass shipments of Sapphire Rapids until next year.
After two years of strong growth in the PC market, Intel could also be hit by delays in announcing Granite Rapids and Meteor Lake processors and declining business profitability due to the need to invest heavily in its new dominance, analysts say. lithographic standards. As Susquehanna’s Christopher Roland explains, Intel has been able to absorb losses from project failures, failed acquisitions and poor strategic decisions for decades thanks to its leadership in lithography. Since its return seems unlikely, according to experts, the company will have to change the vector of strategic development, otherwise it will have to constantly face the problems of growth, low profitability and scarcity of free cash.