Intel/CPUs: slower decline equals stronger earnings 

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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. 

But there is a bright spot in the shape of Intel’s next generation of CPUs (central processing units). Chip production advances are measured in nanometres. The smaller the number, the greater the efficiency. Next year, Intel is due to release 3-nanometer chips. Previous issues with delays make it essential that targets are hit. 

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 will be welcome.