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Intel’s 15 per cent revenue fall in the second quarter is a strange thing to cheer. But it is the smallest year-on-year decline in five quarters. Forecasts are also above estimates. It may not be the big turnaround the company wants, but it is better than nothing.
Intel chips have been outpaced by Nvidia’s graphics processing units (GPUs), high-performance chips needed for complex computing. Nvidia’s GPUs power the artificial intelligence applications that are in demand across the tech sector.
Chief executive Pat Gelsinger’s answer is an expensive transformation plan to build new chip foundries and regain prominence in chip tech, supplying customers with cutting-edge semiconductors. In addition to the US, Intel has just agreed to a $33bn deal to build two semiconductor plants in Germany.
However, these bold targets have coincided with a drop in demand for PCs — a major driver of demand for Intel chips. Just as capital expenditures ballooned, revenue fell. This has steadied but there is a chance that IT budgets will continue to be redirected towards AI.
Intel has set in motion a $10bn cost-cutting plan by 2025. Earlier this year it cut its dividend by two-thirds. Removing the dividend altogether might be wise for a company with more than $46bn in long-term debt and pricey rejuvenation plans. Especially as it only expects to reach break-even free cash flow at the end of the year.
Intel is part-way through a complex attempt to get back to the leading edge of chip process technology. The good news is that after years of stumbles, it claims to be right on track. That could finally give it a chance to shore up its core CPU market. But Intel still needs to master the new manufacturing technology, at 3-nanometers and below, and show its new chip designs are truly competitive again.
A further bright spot comes in the shape of Nvidia, which has spoken about the possibility of expanding its suppliers, a move that could include Intel. A switch from combatant to collaborator would be welcome.
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