Intel, a giant in the computer chip industry, recently surprised everyone by reporting much better earnings than expected. This news caused their stock prices to jump by an impressive 7% in after-hours trading. Let’s break down what this means and what’s going on with Intel.

Strong Earnings Report
On October 31, Intel announced its earnings for the third quarter, which ended on September 28. They reported earnings of 17 cents per share, while many expected them to actually lose 2 cents per share. This positive news excited investors! Intel’s revenue reached $13.28 billion, which was also higher than the expected $13.02 billion.

However, it’s important to note that Intel’s revenue was down 6% compared to the same period last year. They faced a net loss of $16.99 billion, or $3.88 per share. This is a big difference from the net earnings of $310 million, or 7 cents per share, that they had a year ago.

Restructuring for a Brighter Future
Intel is currently undergoing a significant restructuring effort, one of the most important changes the company has faced since it was founded in 1968. CEO Pat Gelsinger mentioned this during a call with analysts, stating that these changes are necessary to help Intel regain its strength in the market.

As part of their cost-cutting plan, Intel had to take some tough actions, which included recognizing $2.8 billion in restructuring charges. They also reported $15.9 billion in impairment charges related to the aging of some of their manufacturing processes and other issues in their Mobileye unit.

In a recent filing, Intel revealed that their board approved plans to cut costs and reduce capital spending. This includes laying off 16,500 employees and downsizing their real estate holdings. These job cuts were announced earlier in August and are expected to be completed by the end of 2025.

Facing Challenges Head-On
Intel has been facing a tough time in recent years. They have lost market share in their core businesses and have struggled to make a mark in the booming field of artificial intelligence (AI). To tackle these challenges, Intel is planning to make their foundry business an independent subsidiary. This change could attract outside funding and help the company recover.

Additionally, Intel is reportedly working with advisors to defend itself against activist investors, and there were rumors of a possible takeover by Qualcomm, a competitor in the chip market.

Sales in Key Areas
Let’s take a closer look at Intel’s performance in different areas. The Client Computing Group, which sells chips for personal computers, reported $7.33 billion in revenue for the third quarter. This is about a 7% drop from the same time last year and below the expected $7.39 billion. This decline happened because customers were reducing their inventory after facing supply shortages.

Intel’s finance chief, Dave Zinsner, mentioned during the call that they expect inventory levels to normalize through the first half of next year. This means that businesses will balance their supplies and demand more effectively in the coming months.

On the bright side, the Data Center and AI segment saw revenue rise to $3.35 billion, an increase of about 9% and surpassing the expected $3.17 billion. This shows that there is still demand for Intel’s products in the growing fields of data processing and artificial intelligence.

Looking Ahead
As for the future, Intel has given some optimistic forecasts for the fourth quarter. They expect adjusted earnings of 12 cents per share and revenue between $13.3 billion and $14.3 billion. Analysts had predicted only 8 cents in adjusted earnings per share and $13.66 billion in revenue, so Intel is aiming higher!

During the quarter, Intel also announced the launch of its new Xeon 6 server processors and Gaudi AI accelerators. However, the uptake of Gaudi products has been slower than expected. Unfortunately, Gelsinger mentioned that they will not reach their target of $500 million in revenue for Gaudi in 2024.

Market Performance
Despite the good news from their earnings report, Intel’s stock has faced challenges this year. As of the end of October, their shares have dropped about 57% in 2024. In contrast, the S&P 500, a stock market index that includes many big companies, has gained 20% this year. This shows that while Intel is making improvements, it still has a long way to go to recover fully in the market.