The recent restructuring plan by Intel shows signs of significant progress.

On November 1st, Intel revealed its financial report for Q3 2024, highlighting advancements in layoffs, restructuring, and business spin-offs.

Intel’s revenue for the third quarter was $13.3 billion, a decrease of 6% year-over-year, but a 4% increase from the previous quarter, surpassing Wall Street's expectations.

However, the company also reported its largest quarterly loss in its 56-year history, amounting to $16.6 billion, a stark contrast to the net profit of $300 million recorded in the same period last year

Furthermore, the GAAP gross margin fell to a historic low of 15%, down from 42.5% from a year ago.

Included in these figures were $15.9 billion in accelerated depreciation costs relating partly to the impairment of assets connected to the Intel 7 process technology (approximately $3.1 billion) and the goodwill impairment in its Mobileye division (around $2.9 billion).

During this quarter, Intel also acknowledged the costs associated with restructuring and asset impairment amounting to $2.8 billionMost of the layoffs have been completed in line with their plan, which aims to reduce its workforce by more than 15% by year-end, while capital expenditures have been trimmed by over 20% from the original plan

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According to the disclosed documents, on October 28, Intel approved a cost-cutting initiative that includes laying off approximately 16,500 employees.

Following the earnings report, Intel's stock rose by 7% in extended trading, bringing its market cap to $92.7 billion.

In Q3, Intel announced its intention to spin off its foundry business to operate as a standalone company, allowing for external financing opportunitiesThe company previously indicated plans to operate Altera as a separate business beginning in Q1 2024.

Intel’s CEO, Pat Gelsinger, stated during the earnings call that this is one of the most transformative restructuring processes in the company’s history, which was established back in 1968.

He also noted that the pace of procurement for Intel's Gaudi chips designed for data centers and artificial intelligence has been slower than expected, which means the projected revenue of $500 million by 2024 may not be achievable.

In contrast, AMD has raised its AI chip revenue expectations to $5 billion for fiscal year 2025, while NVIDIA’s expected revenue from AI chips could exceed $100 billion during the same period

According to Semiconductor Intelligence, the global AI IC market is projected to reach $110 billion in 2024, with the leading companies being NVIDIA, AMD, Apple, Qualcomm, and IntelOther entrants in the AI chip market are still at the nascent stage, with estimated total revenues of around $5 billion.

Intel’s CFO, David Zinsner, commented that the restructuring costs had a meaningful impact on profitability during the third quarter, as the company took significant steps towards achieving its cost-reduction goals.

According to Gelsinger, the Intel team is "intensely focused on improving the productivity of its fabs".

Moreover, Intel is reconstructing its product portfolio by narrowing its focus to fewer products, with the primary goal of maximizing the value of its x86 franchise among its customers.

In response to rumors that Gelsinger's earlier comments led TSMC to revoke a discount for Intel's 3nm chips, Gelsinger clarified to Yahoo Finance that TSMC is an excellent company and has provided great service to Intel

"Without TSMC, we wouldn’t have achieved what we are discussing with Lunar Lake, our AI PC project; they have been critical to that project's success," he stated.

Additionally, he expressed, "We would like to become a significant Western foundry, as we believe that is crucial for the Western world... Ultimately, I also provide them with some advanced equipmentSo, it’s a complicated relationship, but essential for Intel, TSMC, and the entire industry." Gelsinger further noted that TSMC is both a customer and competitor of Intel, fostering a strong cooperative relationship.

01.

Approval for cost-cutting actions includes plans to lay off 16,500 employees.

In Q3, Intel made substantial progress on its $10 billion cost-cutting plan.

According to an 8-K filing by Intel, on October 28, the board's audit, finance, and executive teams approved cost and capital reduction measures.

These measures entail cutting 16,500 employees, consolidating and reducing the company’s global real estate footprint, conducting a portfolio review of the business under a "clean" view, rationalizing capital investments and deployment based on demand signals and capacity needs, and reducing overall operating expenses.

Intel expects to confirm a restructuring cost of $3 billion related to these actions, with $2.8 billion scheduled for recognition in Q3 2024. Of this $2.8 billion, $528 million will be non-cash expenses, and $2.2 billion will be settled in cash going forward.

The restructuring actions are expected to be largely completed by Q4 2025, covering key components as outlined below:

1. Layoffs: In conjunction with layoffs, the company will report a pre-tax employee severance and related termination benefit expense in Q3 2024 of $2.2 billion, primarily involving future cash expenditures.

2. Exit from internal testing equipment manufacturing: As part of its decision to exit and outsource internal testing hardware manufacturing capabilities, the company will recognize pre-tax impairment charges of approximately $442 million for certain under-construction assets in Q3 2024, with none involving future cash expenditures.

3. Real estate exit: In relation to the consolidation and exit from certain real estate, the company expects to recognize pre-tax expenses of around $307 million related to certain owned and operating leased assets and associated lease improvements, the majority of which will require future cash expenditures

In Q3 2024, the company will also recognize $86 million in non-cash impairment for operating lease assets and related lease improvements.

As of September 28, 2024, Intel employed approximately 124,100 people, including 115,000 Intel employees, 5,400 from Mobileye and other subsidiaries, and 3,700 from NAND.

In December 2021, Intel divested its NAND memory business to SK Hynix, completing the spin-off in Q1 2022. Following the second spin-off, NAND employees will be excluded from Intel's total employee count, as the spin-off remains pending and subject to transaction conditions.

02.

Data center and AI revenue increased by 9%,

Foundry business recorded a loss of $5.8 billion.

Intel's net revenue for the third quarter totaled $13.3 billion, reflecting a 6% year-over-year decline.

In Q3, total revenue for Intel’s products stood at $12.2 billion, which is a 2% year-over-year decline

The breakdown is as follows:

The client computing segment (CCG), which sells PC chips, generated the highest revenue at $7.3 billion, a year-over-year decrease of approximately 7%, with operating margins climbing to 37.1%.

The data center and AI business (DCAI) reported revenue of $3.3 billion, reflecting a year-over-year increase of roughly 9%, with operating margins at 10.4%, yet registering operating income of only $300 million, down from $400 million in the same period last year.

The network and edge business (NEX) achieved stable revenue of $1.5 billion, with a 4% year-over-year growth, and reported an operating profit also at $300 million.

Intel's foundry business in Q3 achieved revenues of $4.4 billion, a year-over-year decline of 8%, with an operating loss of $5.8 billion driven primarily by the previously mentioned $3 billion impairment charges

Intel remains cautious regarding its foundry health, expecting losses to remain at a similar pace in Q4, with a significant improvement projected next year.

During the earnings call, Intel executives committed to continuing their execution of the $10 billion cost-cutting program and exploring additional funding avenues to support their chip manufacturing goals.

In other sectors, Altera, primarily selling FPGA chips, reported revenues of $412 million this quarter, a 44% year-over-year decline, but a significant recovery from $360 million in Q2. Profit from revenues has shown a positive turnaround, albeit still distant from the $263 million reported in the same period last year.

Mobileye generated $485 million in revenue this quarter, reflecting an 8% year-over-year decrease, yet surpassing Q2's $440 million figures

The decline in Mobileye’s revenues predominantly arose from a more than 50% reduction in shipments to China.

In the client computing segment, Intel plans to ship over 100 million AI PCs by the end of 2025.

Regarding its foundry business, Intel is finalizing a multi-year, multi-billion-dollar commitment with the world’s largest cloud service provider, AWS, set to introduce new custom Xeon 6 chips built on Intel 3 and a new AI fabric chip developed for AWS on Intel 18A.

The financial breakdown for Intel's revenue across its business segments for Q3 is as follows:

03.

Conclusion: Intel Continues to Face Tough Challenges

Overall, the latest quarterly financial results reflect the ongoing struggles of Intel, with its largest revenue pillar, the client computing business, showing no significant rebounds

The company’s PC, data center, and AI divisions are contending with intensified competition from AMD, NVIDIA, and Qualcomm, while its foundry business grapples to capture market share from TSMC and Samsung, turning it into a fierce battleground.

Intel has set a goal to cut non-product sales costs by $1 billion, reduce operating expenses (OpEx) to $17.5 billion, and lower total capital expenditures and net capital expenditure (capex) to the ranges of $20 billion to $23 billion and $12 billion to $14 billion, respectively, with a positive adjusted free cash flow anticipated next year, focusing on reducing leverage and improving liquidity.

Intel forecasts fourth-quarter revenues between $13.3 billion and $14.3 billion, with a reduction in non-GAAP gross margin to 39.5% and GAAP gross margin lowered to 36.5%.

Zinsner stated that actions taken this quarter allow Intel to enhance profitability and boost liquidity, acknowledging that "normalization of inventory levels is expected to last until the first half of next year" while admitting "profitability remains well below our set standard, and we recognize there’s much work ahead to improve business efficiencies."

He indicated that Intel holds an optimistic outlook for the growing AI PC market, expecting margin growth to plateau in FY 2025 and decline significantly in FY 2026.

"Q3 marked a good start