Should we really be panicking about Intel? Despite all the Sturm und Drang about the company’s results, 2Q24 wasn’t that different from 2Q23.
Income Statement and Cash Flow Don’t Look Bad
- Revenue and gross margins were similar in the two periods.
- R&D went up a little; G&A went down slightly.
- The company lost more money in 2Q24.
- Mostly because of restructuring charges and posting losses on investments.
- Cash flows from operations were similar between 1H24 and 1H23 and were positive.
- 1H24 cash from financing was way up.
- A big source was semiconductor co-investment funds—the Ireland and Arizona SCIPs to build fabs.
Segment Performance Reveals Problems
- PC-processor sales (CCG) were up YoY.
- Data center (DCAI) revenue was down and its OPEX (R&D) was up, which is a problem for the group that not that long ago was driving the company’s growth.
- Network and Edge (NEX) is small compared with CCG and DCAI. Its revenue declined, but opex increased. If profits are going up, why complain?
- Foundry—This is still a captive operation; its accounting is almost entirely an intersegment affair.
- Revenue was up and operating income was down owing to Intel 4 and Intel 3 production.
- I’m pretty sure packaging is in here, too.
- Foundry is a whole special topic that this note isn’t doing justice to.
- Other
- This is Altera, Mobileye, and Other Other.
- Shrinking Altera sales (YoY) which pulled operating income well into the red.
- In 2Q23, Altera’s revenue was $848M, but it plummeted to $361M in 2Q24.
- The first quarter saw a similar decline.
- This run rate puts it below 2021 and well below 2022 and 2023, two years of big growth. Note that the 2021 top line was about the same as pre-acquisition Altera’s revenue in 2014. Back then, Altera had 66% gross margins and 24% net margins. Cleaning up this business will help it fetch more money in a spinout.
Bottom Line
Intel has been raked over the coals for its bad second quarter. Removing its financial performance from the context of competition and the company’s ambitions, the quarter wasn’t horrible. Yes, that context is needed to pass judgment on the firm’s performance, but it’s worth looking at the numbers on their own. The second quarter of 2024 wasn’t especially different from that of 2023. That flat line, and concern about 2025, is the real problem.