Intel’s Q1 2025 Earnings: Navigating Challenges Amid Strategic Shifts
Key Takeaways
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Weak Q2 Guidance Reflects Tariff Uncertainty: Intel guided Q2 revenue significantly below expectations at $11.8 billion, down 7% quarter-over-quarter, citing macroeconomic uncertainty and potential tariff-related demand impacts.
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Product Delays and Competitive Pressures: The delay of the first 18A product, Panther Lake, to late 2025 and reliance on older Intel 7 processes highlight ongoing challenges in product innovation and market competitiveness.
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Gross Margin Pressures Persist: Q2 gross margins are expected to decline to 36.5%, driven by lower revenues, increased outsourcing to TSMC for Lunar Lake, and 18A startup costs, with recovery muted through 2025.
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New CEO’s Strategic Focus: Lip-Bu Tan emphasizes a leaner structure, cost reductions (targeting $17 billion in 2025 opex), and a renewed focus on core product franchises, signaling a long-term turnaround effort.
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Foundry Struggles Continue: Intel Foundry faces challenges in attracting external customers, with minimal Q1 revenues and a conservative approach to building credibility, potentially delaying ambitious goals like becoming the #2 foundry by 2030.
Intel Corporation’s Q1 2025 earnings report paints a complex picture of a company grappling with macroeconomic headwinds, competitive pressures, and internal restructuring, yet showing signs of resilience and strategic recalibration. The company reported Q1 revenue of $12.67 billion, surpassing consensus estimates of $12.31 billion, driven by a demand pull-forward in anticipation of potential tariffs. This strength was evident in the Data Center and AI (DCAI) segment, which grew 7.8% year-over-year to $4.126 billion, and Intel Foundry, which saw a 7.5% quarter-over-quarter increase to $4.667 billion. However, the Client Computing Group (CCG) experienced a 7.8% year-over-year decline to $7.629 billion, reflecting seasonal weakness and a broader PC market correction. Gross margins of 39.2% exceeded expectations due to higher-than-expected revenue and cost improvements in Meteor Lake, but profitability remains under strain, with Q1 EPS of $0.13 beating consensus of $0.01.
Looking ahead, Intel’s Q2 guidance underscores caution, projecting revenue of $11.8 billion, well below consensus of $12.8 billion, and an EPS of $0.00 against expectations of $0.07. This conservative outlook reflects uncertainty around tariffs and trade policies, which could disrupt demand in the seasonally stronger second half of 2025. Gross margins are expected to contract to 36.5%, pressured by lower revenues, increased reliance on TSMC for Lunar Lake compute tiles, and startup costs for the 18A process. The delay of Panther Lake, Intel’s first 18A product, to late 2025 from earlier expectations of H2 2025, coupled with supply constraints on the older Intel 7 process, raises concerns about the company’s ability to command premiums for newer technologies like Intel 4 and Intel 3. This reliance on legacy processes, combined with competitive pressures from AMD in both PC and server markets, suggests Intel is losing ground in product innovation.
Under new CEO Lip-Bu Tan, Intel is embarking on a multi-year turnaround strategy. Tan’s initiatives focus on flattening the leadership structure, reducing operating expenses to $17 billion in 2025 and $16 billion in 2026, and optimizing capital expenditures to $18 billion in 2025 from $20 billion. These cost-cutting measures aim to improve free cash flow generation and strengthen the balance sheet, with additional efforts to monetize non-core assets like Altera and Intel Capital’s portfolio. However, Tan’s vision lacks detailed plans for regaining core leadership computing or scaling Intel Foundry’s external customer base, which reported minimal Q1 revenues. The foundry business is shifting focus to internal products while building trust with external partners through development kits and test chips, a pragmatic but slower approach that tempers expectations of achieving #2 foundry status by 2030.
Analysts have adjusted their outlook, lowering CY25 revenue estimates to around $49-51 billion and EPS to $0.01-$0.48, reflecting tariff-related demand risks and a muted H2 seasonal profile. Price targets have been revised downward to $20-$23, based on 15-17.5x CY26 EPS estimates of $0.39-$1.30, aligning with a derated semiconductor sector amid tariff uncertainties. Intel’s U.S. manufacturing footprint may command a premium, but its high P/E multiples relative to peers and ongoing foundry losses limit near-term upside. The company’s strategic pivot under Tan shows promise, particularly in refocusing on core microprocessors, but execution risks, competitive dynamics, and a challenging macro environment suggest patience will be required for a meaningful recovery. Intel remains a turnaround story with long-term potential, but near-term headwinds keep it in a holding pattern for investors.
View From the Street
Here’s an analysis of investor sentiment and strategic insights from the Intel earnings call Q&A session:
Investor Sentiment Analysis:
Investor sentiment during the earnings call reflects cautious optimism, combined with skepticism regarding Intel’s execution capabilities. Investors raised pointed questions about key strategic and operational challenges. Specific concerns include the balance between the internal product roadmap and foundry customer needs, gross margin dynamics, product competitiveness, and the feasibility of Intel’s Integrated Device Manufacturer (IDM) strategy. Analysts expressed clear apprehension about Intel’s ability to execute effectively and achieve meaningful near-term improvements, indicating a broadly cautious sentiment toward management’s strategic plans.
Key Strategic Questions Raised and Management Responses:
1. Balancing Internal Roadmap and Foundry Objectives:
Investor Question: How will Intel balance enhancing product roadmap flexibility and speed while simultaneously maintaining volumes for Intel Foundry?
Management Response:
CEO Lip-Bu Tan emphasized flattening organizational structure to improve execution speed and prioritizing key products with clear timelines and performance benchmarks. Foundry efforts center initially on internal products (Panther Lake), aiming at incremental improvements in yield and reliability. He emphasized a customer-centric approach to match foundry offerings to specific customer demands.
2. Gross Margin Outlook Amid Strategic Changes:
Investor Question: Given the new CEO’s cost-cutting measures and strategic reorientation, how will gross margins evolve through 2025-2026?
Management Response:
CFO David Zinsner acknowledged headwinds due to new products (Lunar Lake), startup costs for 18A process ramp, and volatile macroeconomic impacts (tariffs). Margins are expected to improve by 2026, driven by volume ramps of Panther Lake and insourcing wafer production, leveraging the economic benefits of Intel’s 18A process.
3. Third-party Foundry Customer Acquisition:
Investor Question: Will Intel pursue significant third-party foundry customers, and how are customer engagements progressing?
Management Response:
Tan indicated initial priority remains the internal ramp (Panther Lake) followed by incremental building of trust and process robustness with external customers. No immediate announcement for major new external customers, though he highlighted a long-term focus on tailoring Intel’s foundry capabilities to customer-specific needs.
4. Product Execution and Leadership Position:
Investor Question: How competitive are upcoming products (Panther Lake, Clearwater Forest) regarding leadership and market position?
Management Response:
Tan and Michelle Holthaus highlighted confidence in Panther Lake’s initial market traction and competitive positioning. Clearwater Forest is a purpose-built derivative rather than a leading-edge general-purpose product. Management confirmed timely product rollouts but did not explicitly claim broad leadership over competitors.
5. Older-Generation Product Demand vs. Newer Products:
Investor Question: Why is demand unexpectedly shifting toward older-generation products (Intel 7/Raptor Lake), potentially disadvantaging newer products?
Management Response:
Holthaus clarified that increased demand for older-generation parts stems from economic pressures and consumer preference for cost-effective systems amidst macroeconomic uncertainty and tariff impacts. Intel is balancing this consumer-driven demand while simultaneously investing in newer products to maintain long-term strategic relevance, especially in the AI PC segment.
6. Intel’s AI Strategy and Potential Arm Incorporation:
Investor Question: How will Intel approach AI workload strategies, and will it consider architectures beyond x86 (like Arm)?
Management Response:
Tan affirmed Intel’s AI strategy prioritizes workload-specific optimizations and indicated exploring disruptive, power-efficient architectures, particularly for edge and inference AI. However, explicit adoption of ARM architectures wasn’t confirmed or detailed.
7. Strategic Rationale of IDM Model:
Investor Question: Given consistent negative gross margins in the foundry business and the historical success of fabless or pure-foundry models, is the IDM strategy sustainable?
Management Response:
Tan defended the IDM strategy, underscoring the balanced approach between internal capabilities and external foundry partnerships (e.g., TSMC). Intel aims to optimize its manufacturing efficiencies internally (18A) while strategically partnering externally to maintain flexibility and cost-effectiveness. He emphasized ongoing collaborations with major foundry leaders.
8. Long-term Turnaround Timeline and Metrics:
Investor Question: Realistically, how long will Intel’s turnaround take, and what metrics will investors use to measure progress?
Management Response:
Tan acknowledged explicitly there’s no quick turnaround and set realistic expectations around multi-year timelines without specifying the exact duration. Key metrics identified include product competitiveness, time-to-market, market share stabilization, operational efficiency, gross margins, and overall financial performance improvements.
Conclusion:
Investors remain cautiously optimistic but are clearly seeking concrete evidence of operational improvements and strategic clarity from management. While management demonstrated awareness and articulated actionable plans, investor skepticism persists due to past execution missteps and current competitive pressures. Management responses provided measured reassurance on product timelines and strategic pivots but highlighted ongoing uncertainty due to macroeconomic volatility, particularly from tariffs, and competitive market dynamics.