Intel Corporation (NASDAQ: INTC)

Intel's first-quarter 2025 revenue remained flat year-over-year at $12.7 billion, reflecting ongoing market challenges and competitive pressures. While the company maintained its top-line performance, profitability metrics showed significant decline. GAAP gross margin decreased by 410 basis points to 36.9%, while non-GAAP gross margin fell by 590 basis points to 39.2%, indicating increased cost pressures and potentially unfavorable product mix.

The company reported a GAAP operating loss of $301 million, which represents an improvement from the $1.07 billion loss in Q1 2024. This improvement was primarily driven by a 19% reduction in GAAP R&D and MG&A expenses to $4.8 billion, reflecting the company's ongoing focus on cost optimization. Non-GAAP operating income was $690 million, representing a slight decline of 4.6% from the prior year, with non-GAAP operating margin contracting slightly by 0.3 percentage points to 5.4%.

Intel generated $813 million in cash from operations during the quarter, marking a substantial improvement from the negative $1.22 billion in Q1 2024. However, the company's adjusted free cash flow remained negative at $(3.68) billion, although this represents an improvement from $(6.18) billion in the prior year.

Intel's segment performance in Q1 2025 reveals a mixed picture across its business units. The Client Computing Group (CCG), traditionally Intel's largest revenue driver, experienced an 8% year-over-year decline to $7.63 billion. This decrease likely reflects ongoing challenges in the PC market and competitive pressures. CCG's operating income fell by 16% to $2.36 billion, indicating margin compression despite cost-cutting efforts.

In contrast, the Data Center and AI (DCAI) segment showed strength with 8% year-over-year revenue growth to $4.13 billion, potentially reflecting improving demand for data center products and early signs of success in Intel's AI-focused offerings. DCAI's operating income increased by 38% to $575 million, demonstrating improved operational efficiency and potentially better pricing in this segment.

Intel Foundry, a key component of the company's strategic transformation, saw 7% revenue growth to $4.67 billion. However, the segment continues to operate at a substantial loss, with an operating loss of $2.32 billion, though this represents a 5% improvement from the prior year.

Intel made several significant product announcements during the first quarter of 2025, reinforcing its commitment to innovation across its portfolio. At CES, the company unveiled multiple new processors in its Intel® Core™ Ultra series, addressing various segments of the computing market. In the data center space, Intel launched new Intel® Xeon® 6 processors with Performance-cores, targeting both traditional data center applications and network/edge use cases.

On the manufacturing technology front, Intel continues to advance its process roadmap, with Intel 18A expected to begin ramping in the second half of 2025. This timing aligns with the planned launch of Intel's first Panther Lake processor by the end of 2025, with additional SKUs coming in the first half of 2026.

Intel also made progress in optimizing its business portfolio during the quarter. The company announced an agreement to sell 51% of its Altera business to Silver Lake, while retaining a 49% stake. Additionally, Intel completed the second and final close of its NAND memory business sale to SK hynix, further streamlining its operations.

A central focus of Intel's Q1 2025 earnings announcement was its comprehensive initiative to drive improved execution and operational efficiency across the business. The company outlined several key components of this plan, which aims to streamline the organization while maintaining investment in core products and technologies.

Intel is reducing its non-GAAP operating expense target to approximately $17 billion for 2025, down from its previously stated goal of $17.5 billion. Looking ahead to 2026, the company is targeting further reductions to $16 billion. These operating expenses include both research and development (R&D) and marketing, general and administrative (MG&A) costs.

On the capital expenditure front, Intel has lowered its gross capital expenditures target to $18 billion for 2025, a $2 billion reduction from its previous target of $20 billion. Despite this reduction, the company still expects net capital expenditures (after accounting for government incentives and partner contributions) to be approximately $8-11 billion.

Intel's guidance for Q2 2025 suggests continued challenges in the near term, with expected revenue of $11.2-$12.4 billion. At the midpoint, this represents a sequential decline of approximately 7% from Q1 and potentially a year-over-year decline compared to Q2 2024. The company's gross margin outlook is also concerning, with GAAP gross margin expected to decline to 34.3% and non-GAAP gross margin to 36.5%.

Perhaps most notably, Intel is guiding for a GAAP loss per share of $(0.32) in Q2, with non-GAAP EPS at the breakeven level of $0.00. This significant sequential deterioration in profitability highlights the challenges Intel faces in its transformation journey and suggests that Q1's results may have been aided by temporary factors that will not persist into Q2.