Intel Corporation (INTC, Financial) is navigating a turbulent period marked by mixed news from the market and internal challenges. Despite posting a significant loss, Intel's stock rose by 7.81% to $23.20 following the announcement of its third-quarter financial results.
The company's financial report, ending September 28, 2024, reveals a sharp decrease in net profit, falling by 6064.76% year-over-year, translating to a loss of $16.64 billion. This downturn has captured the attention of the U.S. government, which is reportedly exploring options to support Intel, including potential mergers of its chip design business with rivals like AMD or Marvell.
The U.S. government's involvement appears to be in the preliminary discussion stage, echoing previous rumors about potential mergers with companies like Qualcomm. The government has shown interest in maintaining Intel's technological influence by including it in the CHIPS Act, promising up to $25 billion in support through subsidies, loans, and tax breaks. However, Intel CEO Pat Gelsinger has expressed frustration over delayed emergency funding.
Intel's struggle to secure government funding is partly due to its hesitation to provide detailed financial plans. The company claims progress, highlighting strong operational performance in the third quarter, despite the financial report showing significant losses.
A deeper look into Intel's third-quarter results shows that the substantial net profit decline is largely due to a one-time $3.1 billion impairment charge for manufacturing assets, particularly related to Intel 7. Excluding this charge, Intel's gross profit would be approximately $5.1 billion, with a gross margin of 38.4%, slightly above market expectations.
Additional impairments and restructuring charges totaling $18.5 billion further impacted Intel's net profit. Without these charges, the company's net loss would have been a more modest $140 million.
Intel's revenue structure primarily comprises client computing and data center & AI segments, which together contribute over 80% of total revenue. However, the third-quarter revenue fell by 6.2% to $13.284 billion, partly due to a 6.8% decline in client computing revenue. Although the data center & AI segment recorded a 9% year-over-year growth, the Altera business within this segment saw a 44% decline.
The deterioration in Intel's core market share and AI business performance, coupled with a substantial decrease in market capitalization from $290 billion in 2020 to about $100 billion, led to Intel's removal from the Dow Jones Industrial Average after 25 years.
Despite the challenges, Intel's financial structure appears more stable post-charge, potentially paving the way for recovery. The company's future looks more optimistic if it secures U.S. government technical subsidies.
