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    INTC
    Earnings call· Mar 2025(Q1 FY25)

    INTEL CORP INTC

    Apr 24, 2025 Source

    Executive summary

    Intel Q1 FY25 — Strong Q1 Beat, Cost Reductions, and Strategic Refocus

    Intel delivered a strong Q1 FY25, exceeding revenue, gross margin, and EPS guidance, primarily driven by robust Xeon sales and improved cost management. New CEO Lip-Bu Tan outlined immediate priorities focused on cultural transformation, organizational flattening, and significant cost reductions in OpEx and CapEx. The company is refocusing its product roadmap on best-in-class solutions, refining its AI strategy, and building trust with foundry customers, while acknowledging that these changes will take time to fully materialize.

    Highlights

    5

    • Q1 revenue of $12.7 billion came in at the high end of guidance, driven by better-than-expected Xeon sales.

    • Non-GAAP gross margin was 39.2%, approximately 3 percentage points above guidance.

    • Q1 non-GAAP EPS of $0.13 exceeded guidance of breakeven EPS.

    • Operating expenses were down $400 million sequentially and $700 million year-over-year.

    • Secured $1.1 billion from CHIPS grants and $1.9 billion from the final close of NAND business sale.

    Concerns

    5

    • Q2 revenue guidance of $11.2 billion to $12.4 billion (midpoint $11.8 billion) is down 2% to 12% sequentially, below historical seasonality.

    • Q2 non-GAAP gross margin is guided to approximately 36.5%, a sequential decline from Q1's 39.2%.

    • Intel Foundry operating loss was $2.3 billion in Q1, roughly flat sequentially.

    • Intel 7 wafer capacity constraints are expected to persist for the foreseeable future.

    • Increased macroeconomic uncertainty, shifting trade policies, persistent inflation, and increased regulatory risk are impacting forecasts.

    Guidance & targets

    15
    CategoryTargetConfidence
    Q2 FY25 Revenue
    $11.2 billion to $12.4 billion
    high materiality
    Medium
    Q2 FY25 Non-GAAP Gross Margin
    approximately 36.5%
    high materiality
    Medium
    Q2 FY25 Non-GAAP EPS
    breakeven EPS
    high materiality
    Medium
    FY25 OpEx
    $17 billion
    high materiality
    High
    FY26 OpEx
    $16 billion
    high materiality
    High
    FY25 Gross Capital Investment (CapEx)
    approximately $18 billion
    high materiality
    High
    FY25 Net CapEx
    approximately $8 billion to $11 billion
    high materiality
    Medium
    FY25 GAAP Noncontrolled Income (NCI)
    approximately $500 million
    medium materiality
    High
    FY26 GAAP Noncontrolled Income (NCI)
    $1.3 billion to $1.5 billion
    medium materiality
    High
    Q2 FY25 GAAP Noncontrolled Income (NCI)
    net to 0
    medium materiality
    High
    PC TAM Growth
    3% to 5%
    medium materiality
    Medium
    Traditional Server CPU Core Growth
    double-digit growth
    medium materiality
    Medium
    Q2 FY25 Tax Rate
    12%
    low materiality
    High
    Altera Deconsolidation
    second half of 2025
    medium materiality
    High
    Return to Office Policy
    4-day per week
    low materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Intel Products
    Revenue was above expectations, but down sequentially. Operating profit declined due to lower revenue, partially offset by reduced operating expenses.
    Operating profit as % of revenue: 25%
    		$11.8 billion—-10%$2.9 billion
    Client Computing Group (CCG)
    Revenue was below typical seasonality but in line with expectations, with higher-than-expected volumes offset by product mix and competitive pressure.
    		——-13%—
    Data Center and AI (DCAI)
    Revenue was above expectations, driven by hyperscaler demand for host CPUs for AI servers and storage compute.
    		——-5%—
    Intel Foundry
    Revenue increased sequentially due to pull-ins of Intel 7 wafers and increased advanced packaging services. Operating loss was roughly flat sequentially, with structural cost improvements offset by start-up costs for Intel 18A ramp.
    		$4.7 billion—+8%-$2.3 billion
    All Other
    Revenue was slightly above expectations. The segment collectively delivered an operating profit.
    		$943 million—-15%$103 million

    Operational metrics

    13
    Non-GAAP Gross Margin
    39.2%3 percentage points above guidance
    Q1 FY25

    Driven by stronger-than-expected demand for Raptor Lake and improved cost for Meteor Lake.

    Non-GAAP EPS
    $0.13vs. breakeven guidance
    Q1 FY25

    Exceeded guidance due to higher revenue, stronger gross margin, and lower operating expenses.

    Operating Expenses
    $400 milliondown sequentially
    Q1 FY25

    Part of focus on optimizing cost structure.

    Operating Expenses
    $700 milliondown year-over-year
    Q1 FY25

    Part of focus on optimizing cost structure.

    Gross CapEx
    $6.2 billion
    Q1 FY25

    Reported for the quarter.

    CapEx Offsets
    $1.7 billion
    Q1 FY25

    Offsets against gross CapEx.

    Cash Balance
    $21 billion
    Q1 FY25

    Ended the quarter with this cash balance.

    CHIPS Grants Received
    $1.1 billion
    Q1 FY25

    Received during the quarter.

    NAND Business Sale Proceeds
    $1.9 billion
    Q1 FY25

    Received from the final close of the NAND business sale to SK Hynix.

    AI PC Growth Rate
    lower than expected
    Q1 FY25

    While growth is expected throughout the year, the Q1 rate was lower than anticipated.

    Data Center CPU Core Growth
    double-digit growth
    FY25

    Supported by delayed infrastructure upgrades and rapid adoption of AI servers.

    Capital Intensity
    25%
    Long-term

    Expected for a full IDM model on a long-term basis.

    IPU Products Revenue Growth
    double-digitdoubling
    FY24 to FY25

    Expected growth from 2024 to 2025.

    Industry KPIs

    3
    MetricValueDetails
    Design wins socket pipeline1 large custom design wincount
    Node platform ramp scheduleIntel 18A for Panther Lake; Intel 14A
    End market segment revenue mixCCG down 13% QoQ; DCAI down 5% QoQ%

    Deals & partnerships

    1
    Silver Lake PartnersSale of 51% stake in Alteraalmost $9 billion valuation (Intel receiving net cash proceeds of $4.4 billion)

    Intel announced its intention to sell 51% of Altera to Silver Lake Partners. Raghib Hussain will join as CEO of Altera. Intel expects to deconsolidate Altera from financial results upon closing.

    Risks & headwinds

    7
    Macroeconomic Uncertainty and Trade PoliciesQ2 FY25 and beyond

    Q2 revenue guidance down 2% to 12% sequentially; Q2 gross margin ~36.5%

    Mitigation: Managing the business with conservatism, leveraging global diversified manufacturing footprint to mitigate tariffs, focusing on cost optimization.

    Regulatory RiskOngoing

    Increased regulatory risk

    Mitigation: Managing the business with conservatism, closely managing what's in control and reacting quickly.

    Tariffs ImpactFY25

    Cost increase expected; potential for meaningful tariffs to impact full year

    Mitigation: Leveraging global supply chain to flex and mitigate headwinds; optimizing network to new tariff rules over time.

    Economic Slowdown / Recession ProbabilitySecond half of FY25

    Anticipate a TAM contraction; potential pullback in investment and spending

    Mitigation: Managing the business with conservatism, focusing on cost reductions (OpEx, CapEx) and balance sheet deleveraging.

    Intel 7 Capacity ConstraintsForeseeable future

    Lower wafer and advanced packaging volume; capacity constraints in Intel 7

    Mitigation: Leveraging the network to produce more wafers; optimizing assets under construction; balancing internal and external manufacturing.

    Mix Shift to Lower-Margin ProductsQ2 FY25 and through FY25

    Q2 gross margin ~36.5% on lower revenue and mix to outsourced and lower-margin client products (Lunar Lake)

    Mitigation: Focusing on better margin products like Panther Lake in FY26; driving operational efficiencies.

    Start-up Costs for Intel 18A RampThrough FY25

    Intel Foundry operating loss of $2.3 billion in Q1; start-up costs putting pressure on gross margins

    Mitigation: Focusing on yield and reliability improvements; scaling the business; Panther Lake ramping in volume in FY26 to improve margins.

    What to watch in Q2 FY25

    5

    Q2 FY25 Revenue Performance

    next quarter
    CurrentQ1 revenue $12.7B (high end of guidance)
    TargetWithin $11.2B-$12.4B range, or higher

    Why it matters

    Indicates the actual impact of macroeconomic uncertainties, trade policies, and regulatory risks on customer buying patterns, and whether the strong start to Q2 persists.

    But what we are anticipating and what's built into our guidance that the macro is going to start to catch up📎 to the implications of the tariffs. And so June is likely to be softer than our strong start to the quarter.

    Q&A highlights

    6

    How does Intel balance fixing its product roadmap and filling its own foundry, given the new focus on flexibility and speed?

    Lip-Bu Tan emphasized flattening the organization to focus on delivering 'killing products' with laser focus on performance, power, and on-time delivery. For the foundry, the priority is ramping internal customers like Panther Lake on 18A, then building trust with external customers by improving yield and reliability, and adopting a customer service mindset to accommodate diverse design methodologies.

    “I think from the product side, they have to do the best they can and depend on whether it's inside or outside and then drive the performance of the products.”

    asked by Ross Seymore · answered by Lip-Bu Tan

    2 min read6 chapters

    Detailed Narrative

    01

    New CEO's Initial Observations and Priorities

    Lip-Bu Tan, joining Intel 5 weeks ago, identified organizational complexity and bureaucracy as key challenges stifling innovation and agility. His immediate actions include flattening the leadership team structure, with all critical product, manufacturing, and G&A functions now reporting directly to him. This aims to accelerate decision-making, empower smaller teams, and reduce layers, fostering a more collaborative and efficient environment.

    02

    Cost Reduction and Efficiency Initiatives

    The company is undertaking significant cost-cutting measures, lowering calendar 2025 OpEx targets to $17 billion (from $17.5 billion) and setting a 2026 target of $16 billion. Gross CapEx for 2025 is also reduced by $2 billion to $18 billion, reflecting operational efficiencies and better utilization of in-store capacity. These reductions are part of a broader effort to strengthen the balance sheet and deleverage, while still making necessary investments in innovation.

    03

    Product Roadmap and AI Strategy Refocus

    Intel is prioritizing building 'best products always win' by refocusing its core client and server businesses. This involves redefining the portfolio for AI workloads, making adjustments to the product roadmap for on-time delivery of competitive products, and evolving design and engineering mindsets. The AI strategy will focus on emerging areas like reasoning models, agentic AI, and physical AI, leveraging the CEO's startup experience to develop full-stack AI solutions.

    04

    Foundry Business and Trust Building

    A key priority is building trust with foundry customers, emphasizing a customer service mindset. This includes ensuring Intel 18A ramps successfully for internal products like Panther Lake (first SKU by year-end, additional in H1 2026) and embracing industry-standard EDA tools. The goal is to deliver wafers that meet customer requirements for power, performance, area, cost, quality, yield, reliability, and on-time schedule, with a focus on defining KPIs for Intel 14A.

    05

    Balance Sheet Strengthening and Asset Monetization

    To address the capital-intensive nature of the business and current financial performance, Intel is focused on strengthening its balance sheet. This includes the announced sale of 51% of Altera to Silver Lake Partners for $4.4 billion net cash proceeds, expected to close in H2 2025. Intel Capital will not be spun off but will monetize its existing portfolio and be more selective on new investments, with a goal to deleverage the balance sheet this year.

    06

    Q1 Performance and Q2 Outlook Drivers

    Q1 revenue benefited from better-than-expected Xeon sales and customer purchasing behavior in anticipation of potential tariffs. Gross margin was boosted by stronger Raptor Lake demand and improved Meteor Lake costs. However, Q2 guidance reflects increased macroeconomic uncertainty🌐, potential tariffs, and a mix shift towards outsourced and lower-margin client products, leading to a wider-than-normal revenue range and lower gross margin expectations.

    AI-generated summary of the company’s earnings call. Not investment advice.