Story Stocks^®

In its first earnings report since beleaguered chip maker Intel (INTC) ousted its former CEO Pat Gelsinger, the company surpassed analysts' low 4Q24 expectations, but one doesn't need to look too far under the surface to see that its struggles remain. With the exception of its smaller Network & Edge unit, which generated yr/yr growth of 10%, each of INTC's segments experienced revenue declines, indicating that the company's competitive position hasn't improved as it looks to close the technology gap against rivals like Advanced Micro Devices (AMD) and NVIDIA (NVDA).

• Even INTC's revenue beat comes with a major caveat. During the earnings call, co-CEO David Zinsner acknowledged that a portion of Q4 revenue in Client Computing Group (CCG) was driven by customers buying ahead of the likely implementation of tariffs. Due to this pull forward in demand, along with the ongoing rebalancing of PC inventory and competitive pressures, INTC issued downside EPS and revenue guidance for Q1.
• Michelle Johnston Holthaus, the other co-CEO, didn't sugar coat the situation during the earnings call, stating that "there are no quick fixes" and admitting that she is not pleased with where INTC is today in regard to the AI data center market. The remarks did come as a breath of fresh air as she painted a realistic picture of where INTC currently stands and detailed what it needs to do to get out of this rut.
• Strengthening the product roadmap and winning back customers is easier said than done, but that is the key for INTC's turnaround. While the company's processors in the PC and laptop markets (i7, Core i9) are at least generally on par with products from AMD and Qualcomm (QCOM), the same can't be said on the data center side. In Q4, Data Center and AI (DCAI) revenue fell by 3% yr/yr to $3.4 bln, after the unit achieved growth of 9% last quarter. Ms. Holthaus stated that 2025 is all about improving the competitive position of Xeon, which is sold into the traditional data center market.
• Furthermore, in 1H25, the company plans to launch Clearwater Forest, its first 18A server product. As a reminder, 18A is INTC's new process technology that will help launch new CPUs for both PCs and data centers. The news isn't as encouraging on the AI data center side at this point with Ms. Holthaus commenting that INTC isn't participating in the cloud-based AI data center market in a meaningful way yet.
• Turning to CCG, revenue fell by 9% yr/yr to $8.0 bln following last quarter's 7% dip. On the positive side, the company's PC customers digested inventory at a much slower rate in Q4 compared to Q3. Looking ahead, INTC is poised to launch Panther Lake in 2H25, its next generation desktop processor that will utilize the 18A process node. In 2026, the company expects Panther Lake to achieve meaningful volumes, providing a significant boost to CCG.
• For the upstart Foundry segment, the story remains mostly unchanged as the unit continues to bleed red ink to the tune of $13 bln in losses in 2024. INTC is still the largest customer of the Foundry segment and that will likely remain the case for the foreseeable future. Still, INTC believes Foundry will eventually transform into a huge opportunity, bolstered by the rapid growth of AI and the need for another manufacturing source outside of Taiwan Semiconductor (TSM).

The main takeaway is that Q4 was another rough quarter for INTC, and the next few quarters may not show much improvement either given the magnitude of the challenges facing the company. If there is a silver lining, it's that INTC does have some key products set to launch this year, and a new CEO may help to refocus and reenergize the company.