During a conference call with investors, Intel CEO Lip-Bu Tan outlined his plan to revitalize Intel's culture of innovation. Amongst measures announced were a mandatory return to the office four days a week, a reduction in the number of meetings, and the elimination of internal administrative tasks deemed non-essential - in favor of engineering work. These announcements slightly limited the stock's losses after the close, although the stock was still down 5%.
When geopolitics doesn't help
This gloomy outlook is likely to disappoint investors who were counting on Tan to revive a company weakened by years of strategic missteps and struggling in the face of the rise of artificial intelligence. Group CFO David Zinsner said that tariff fears had led to an accumulation of Intel chip inventories by customers, artificially boosting Q1 sales. He warned that this effect is likely to reverse in Q2.
"Highly volatile trade policies in the US and elsewhere, as well as regulatory risks, increase the likelihood of an economic slowdown or even a recession," Zinsner told analysts. "This complicates our outlook for the quarter and for the year."
Doubts surrounding an alliance
Despite these tensions, Tan said he recently met with Taiwan Semiconductor Manufacturing Company (TSMC) CEO C.C. Wei and his predecessor Morris Chang. The goal, he said, was to identify areas of mutually beneficial collaboration. The discussions took place on the sidelines of TSMC's annual Technology Day in the United States, held Wednesday in Santa Clara, California, which Tan attended alongside Wei.
However, when TSMC's results were released, C.C. Wei dismissed any idea of a rapprochement, stating that no collaboration or joint venture with Intel was planned. Given this discrepancy in statements, the discussions are becoming increasingly vague, making it difficult to continue to believe in the narrative of a strategic alliance between the companies.
A new shift in the works
As part of its streamlining plan, Intel announced a downward revision of its operating expenditure targets: $17bn in 2025, down from $17.5bn previously, and then $16bn in 2026. The company is also lowering its gross capex to $18bn for 2025, down from the $20bn initially planned. Tan said the company was reviewing its industrial footprint and existing production capacity before making any new financial commitments. In February, Intel had already postponed a $28bn factory project in Ohio until 2030.
Zinsner said Intel had received $1.1bn in US government subsidies under the CHIPS Act, but that investment forecasts for 2025 remained unchanged at between $8bn and $11bn due to uncertainty surrounding the timing of the agreement's implementation.
Regarding potential job cuts, the CFO said the impact of the restructuring plan would be clarified when the second quarter results are released. In an internal memo released before his first conference call as CEO, Tan announced layoffs starting in the second quarter. He emphasized that these decisions were aimed at reducing internal bureaucracy and that the number and size of meetings would be significantly reduced.
"There is no silver bullet: these critical changes will result in a reduction in our workforce," Tan wrote. "As I said when I arrived, we must make difficult decisions to put Intel back on a solid footing."
Risks to be expected?
For Q2, Intel anticipates revenue of between $11.2bn and $12.4bn, compared with the consensus of $12.82bn, according to LSEG. While the US, under President Donald Trump, has so far spared semiconductors from new tariffs, heavy Chinese retaliation on chips manufactured in the US is weighing on Intel's sales prospects in China, which is traditionally its largest market.
According to a note from the China Semiconductor Industry Association, these chips could be subject to tariffs of 85% or more. Each year, China imports $10bn worth of US chips, including about $8 billion worth of central processing units (CPUs) assembled by Intel in the US, according to Bernstein analysts.
Q1 revenue was flat at $12.67bn, exceeding expectations of $12.30bn. Intel forecasts Q2 adjusted EPS of zero, compared with an average estimate of 6 cents.
Many uncertainties continue to weigh on Intel. Against this backdrop, Wells Fargo analyst Aaron Rakers remains neutral on the stock following the results. In his view, "continued reassurance on Intel's roadmap execution, combined with a recovery in demand for PC and server processors, could offer an attractive risk/reward profile."
However, he qualifies his comments by adding "We are maintaining our targets at current levels for several reasons: (1) it is still too early to reliably judge the execution of the technology roadmap. Production unit management is now looking beyond 2025; (2) uncertainties remain about Intel's ability to sustainably achieve a gross margin above 50% and positive free cash flow; (3) competition remains intense, both from AMD and other players offering non-x86-based architectures."
