INTC Q2 2025: Sees Gross Margin Climb to 40-60% as CapEx Eases
- Strong focus on technology and product innovation: The management discussed how Intel 18A is being rigorously advanced as the foundation for at least the next three generations of client and server products, with regular reviews and active engagement with external ecosystem partners to ensure yield and performance targets are met.
- Robust demand in core markets: Executives highlighted sustained strong demand in key segments—with evidence of capacity tightness (e.g., Intel seven shortages and strong performance of Raptor Lake) and consistent revenue outperformance—suggesting a resilient market presence moving forward.
- Improving margin outlook and cost discipline: Guidance indicates an anticipated improvement in gross margins into the 40% to 60% range next year, driven by better cost structures, higher volumes (e.g., ramping of Panther Lake), and strategic actions to reduce operating expenses, all of which support a bullish profit profile.
- Gross Margin Pressure: The company highlighted headwinds from new product mixes—such as the expected ramp of Lunar Lake and early-stage Panther Lake—which could lead to lower gross margins as volumes and yields have yet to fully improve.
- High CapEx and Asset Utilization Risks: Significant ongoing CapEx coupled with large assets under construction introduces the challenge of efficiently deploying investments. The uncertainty in fully utilizing these assets and extracting their value remains a potential drag.
- Execution Risks in Foundry Strategy: The long ramp required for 18A and cautious approach to 14A—with reliance on achieving internal yield improvements before attracting external customers—creates a risk of delays or underperformance in the foundry business, impacting overall growth.
| Metric | YoY Change | Reason |
|---|---|---|
Revenue | Q1 2024: +9% (from $11.7B to $12.7B); Q1 2025: flat at $12.7B | In Q1 2024, revenue rose 9% YoY driven by robust growth in the Client Computing Group (+31%) and Data Center & AI (+5%), despite declines in segments such as Mobileye (–48%) and Altera (–58%). In Q1 2025, revenue remained flat as the prior period’s gains plateaued, reflecting a leveling off in most segments. |
Gross Margin | Q1 2024: improved from 34.2% to 41.0%; Q1 2025: declined to 36.9% | The Q1 2024 gross margin improvement resulted from better sell‐through of reserved inventory, lower period charges, and a more favorable product mix, while the Q1 2025 decline to 36.9% was due to increased period charges and shifts in product mix that eroded profitability . |
Operating Expenses | Q1 2024: increased by 10% (from $5.4B to $5.9B); Q1 2025: decreased by 19% | Q1 2024 saw a 10% rise in operating expenses driven by higher R&D, MG&A costs, and increased share-based and incentive-based compensation. In Q1 2025, cost-reduction measures and headcount reductions under the restructuring plan led to a 19% decline in these expenses. |
Net Income (Loss) | Q1 2024: improved from –$2.8B to –$0.4B; Q1 2025: worsened to –$0.8B | In Q1 2024, net loss shrank dramatically due to higher revenues, improved gross margin, and disciplined spending. However, in Q1 2025, the net loss widened slightly to –$0.8B as restructuring costs and margin pressures from a declining gross margin weighed on profitability. |
Operating Cash Flow | Q1 2024: –$1,223M (improved from –$1,785M); Q1 2025: +$813M | Q1 2024’s operating cash flow improved as the net operating loss narrowed and working capital adjustments helped reduce the cash used from –$1,785M to –$1,223M. In Q1 2025, further operational adjustments, including depreciation and share-based compensation effects, turned operating cash flow positive at $813M. |
Investing & Financing Cash Flows | Q1 2024: Investing –$2,563M; Financing +$3,630M; Q1 2025: Investing +$81M; Financing –$196M | In Q1 2024, investing cash flow was largely negative due to high purchases of short-term investments and capital expenditures, while financing provided significant liquidity from debt issuances. In Q1 2025, divestitures (e.g., NAND memory business sale) and lower capital outlays reversed investing cash flow to +$81M, accompanied by reduced debt issuance resulting in a net cash outflow of –$196M. |
Balance Sheet | Q1 2024: Notable shifts include PPE up (from $96,647M to $99,924M), short‐term investments down (from $17,955M to $14,388M), short‐term debt up (from $2,288M to $4,581M); Q1 2025 vs Q4 2024: Cash up (from $8,249M to $8,947M), accounts receivable and other current assets down, short‐term debt up (from $3,729M to $5,240M) | Q1 2024 balance sheet changes reflected strategic capital investments, a reduction in short-term investments, and increased short-term debt to support operations, along with adjustments in inventories and accrued liabilities. Comparatively, Q1 2025 improvements in cash and better management of receivables alongside a rise in short-term debt highlight continued investment activity and liquidity management from prior period adjustments. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | $11.2 billion to $12.4 billion | $12.6 billion to $13.6 billion | raised |
Gross Margin | Q3 2025 | 36.5% | 36% | lowered |
Tax Rate | Q3 2025 | 12% | 12% | no change |
EPS | Q3 2025 | breakeven EPS | breakeven EPS | no change |
NCI | Q3 2025 | 0 | $250 million to $300 million | raised |
2025 OpEx | 2025 | $17 billion | $17 billion | no change |
2026 OpEx Target | 2026 | $16 billion | $16 billion | no change |
Gross CapEx | 2025 | $18 billion | $18 billion | no change |
Net CapEx | 2025 | no prior guidance | $8 billion to $11 billion | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Revenue | Q2 2025 | $11.2B to $12.4B | $12.9B | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Product Innovation and Advanced Process Nodes | In Q1 2025 and Q4 2024, discussions centered on Intel 18A, Panther Lake, and Clearwater Forest—with Q1 2025 including talk on ramping 18A for client products and Q4 2024 noting progress on performance, while Intel 14A was less emphasized in Q4 2024 | Q2 2025 emphasizes steady progress on yield and performance for Intel 18A, an aggressive external engagement strategy, and a clear roadmap for 14A as a foundry node along with updated timelines for Panther Lake and Clearwater Forest | Consistent focus on advanced nodes with an increased emphasis on external customer engagement and a stronger push for 14A architecture in Q2 2025 |
Margin Improvement and Cost Discipline vs. Margin Pressure | Q1 2025 and Q4 2024 highlighted improvements in cost structure through operating expense reductions and cost discipline initiatives but also noted margin pressures from product mix issues (e.g. Lunar Lake) and competitive pricing pressures | Q2 2025 continues to discuss margin improvements driven by product ramp benefits (e.g. Panther Lake) and further improvements via operational efficiencies while still facing pressures from tariffs and early ramp costs | The topic remains consistently important, with continued efforts to enhance cost discipline despite ongoing margin pressures, suggesting cautious optimism in Q2 2025 |
Foundry Strategy, Execution, and Yield Challenges | In Q1 2025 and Q4 2024, Intel discussed its focus on internal customer prioritization, partnership (including references to TSMC), and process yield challenges particularly on Intel 18A, with a cautious approach to engaging external customers | Q2 2025 emphasizes a disciplined foundry strategy that integrates a cultural shift (improved yield focus), robust external customer engagement, early collaboration on Intel 14A, and clear process milestones for yield improvements | A steady evolution from internal focus to a more aggressive, externally oriented foundry strategy with a stronger emphasis on yield and process reliability in Q2 2025 |
Manufacturing Capacity Constraints and Product Mix Concerns | Q1 2025 and Q4 2024 discussed capacity constraints (e.g. Intel 7 node limitations, unexpected demand for older nodes) and product mix shifts driving margin pressure (e.g. Lunar Lake challenges) | In Q2 2025, Intel addresses fragmented factory footprints by consolidating operations (e.g. slowing Ohio construction, consolidating in Costa Rica) while noting evolving client mix influences such as solid demand in AI PCs and server products for AI workloads | Continued concern over capacity and product mix, with a strategic shift toward consolidation and alignment of capacity investments with clear volume commitments in Q2 2025 |
Market Share Recovery and Competitive Dynamics | Q1 2025 and Q4 2024 emphasized the need for regaining market share through improved product portfolios, customer trust and addressing competition both in the client and data center segments (including challenges from ARM and cloud-based AI) | Q2 2025 features CEO Lip-Bu Tan outlining steps to improve execution—especially in hyperscale workloads and server products (with specific mentions of 18A, Clearwater Forest, Diamond Rapids)—to boost competitiveness and market share recovery | A sustained theme with incremental emphasis in Q2 2025 on execution speed and leadership changes to close competitive gaps, reflecting cautious but strategic optimism for future recovery |
Emerging AI Initiatives and Edge AI Applications | Q1 2025 and Q4 2024 saw Intel outlining a workload‐first approach for AI, addressing edge AI through product developments (e.g. AI PCs, leveraging CPU strengths) while also simplifying its overall AI roadmap | In Q2 2025, the focus expands to include agentic AI and full-stack AI solutions integrating silicon, systems, and software, with enhanced focus on optimizing both inference and edge use cases (including ARC GPUs and open edge platforms) | A consistent theme that is evolving from initial AI workload exploration to a more integrated, full‐stack approach with clearer emphasis on agentic AI and edge applications in Q2 2025 |
Tariff Impacts and Macroeconomic Uncertainty | Q1 2025 and Q4 2024 discussed the uncertainty from shifting trade policies and tariffs, noting customers hedging orders and impacts on revenue timing and product mix, with tariff-induced cost pressures affecting gross margins | Q2 2025 notes tariff-related customer behaviors helped Q2 revenue, yet warns of a below-seasonal Q3 linked to ongoing tariff impacts and persistent macroeconomic uncertainties despite relatively normal market function in Q2 | The subject remains consistently significant with similar challenges noted in all periods; Q2 2025 shows some recovery but maintains caution regarding near-term macroeconomic headwinds |
Capital Expenditure and Asset Utilization Risks | Q1 2025 reported a reduction in gross CapEx targets (to $18 billion) and discussed leveraging construction in progress to improve asset returns, while Q4 2024 mentioned higher growth CapEx targets near $20 billion along with challenges in asset utilization | Q2 2025 reveals a disciplined CapEx approach with guidance of $18 billion in gross investment, proactive slowing of construction in Ohio, and active reduction in construction in progress levels, along with non-cash impairments addressing obsolete tools | An ongoing topic with a shift toward tighter financial discipline and better asset utilization in Q2 2025, suggesting a pragmatic approach to aligning investment with actual demand |
Operational Transformation and Restructuring Risks | Q1 2025 detailed efforts to flatten the organization, set new OpEx targets, and streamline operations, while Q4 2024 had only limited related commentary | Q2 2025 provides extensive details on restructuring efforts including significant headcount reductions, a 50% cut in management layers, return-to-office mandates, and planned restructuring charges—all as part of a full operational transformation initiative | A topic that has gained prominence in Q2 2025 relative to Q4 2024, reflecting an intensified and more transparent restructuring effort with acknowledged risks but viewed as essential for future operational efficiency |
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Gross Margins
Q: What drives margin headwinds next quarter?
A: Management explained that a Lunar Lake mix and early Panther Lake ramp will temporarily lower margins, though improved yields and cost efficiencies should push non-GAAP margins to the 40%-60% range next year. -
CapEx Outlook
Q: How will maintenance CapEx change next year?
A: CFO noted roughly 50% of current spending is sustaining, with normalized CapEx at about $18B this year and a meaningful decline planned next year, though spending remains above $9B. -
Foundry Roadmap
Q: When will 14A progress become clear?
A: The team is focused on building the fundamentals of 14A and waiting for clear internal and external volume commitments before additional CapEx—targeting a timeline similar to industry norms in 2028-29. -
x86 Rebuilding
Q: How soon will x86 trust be restored?
A: Management is centering on ramping Intel 18A as the backbone for three future product generations, with a planned PantaLake SKU launch by year-end that should rebuild customer confidence. -
Server Market Share
Q: Can server share be recovered soon?
A: Efforts including the upcoming Diamond Rapids and broader roadmap reviews suggest a path to stabilize and gradually recapture market share, aiming for noticeable improvements by late 2026. -
AI Strategy
Q: How will AI and ASIC initiatives evolve?
A: The CEO outlined a full-stack AI strategy that integrates x86 and accelerator platforms while remaining open to ASIC partnerships to drive external customer engagement in emerging AI workloads. -
Inventory Write-Downs
Q: What caused the equipment write-downs?
A: CFO clarified that, aside from normal cost adjustments, significant equipment impairments occurred on outdated tools held for construction—a necessary step to align assets with market values. -
Fab Utilization
Q: How are construction in progress costs managed?
A: Improved use of existing facilities is expected to lower the balance of assets under construction, moving from higher previous levels as newer investments become productive. -
Intel 7 Supply
Q: What’s behind the Intel 7 shortage?
A: Strong demand for Raptor Lake is stressing Intel 7 capacity, even as the ramp-up of Granite Rapids is underway to supplement supply increases. -
ARM Competition
Q: How will ARM competitors affect servers?
A: Despite ARM claims, Intel’s robust 55% server market share and a focus on high-end performance improvements are expected to mitigate the competitive pressure.
Research analysts covering INTEL.