Intel outlines $18B 2025 CapEx and signals strategic foundry shift amid cost cuts and AI focus

Earnings Call Insights: Intel Corporation (INTC) Q2 2025

Management View

• CEO Lip-Bu Tan stated that “we had a solid Q2 with revenue above the high end of our guidance,” emphasizing strong demand and team execution. He noted headline profitability was impacted by one-time items and impairments but highlighted underlying operating performance improvements.
• Lip-Bu Tan detailed four major initiatives: organization/culture, foundry strategy, x86 franchise, and AI. He reported a systematic organizational review, targeting a year-end employee count of 75,000 with a 50% reduction in management layers, and a return-to-office mandate for September to streamline operations and improve agility.
• On foundry strategy, Tan said, “transforming this unique asset into a robust foundry business requires us to take a systematic approach and act from the position of strength,” confirming the cancellation of manufacturing projects in Germany and Poland, consolidation of assembly and test operations in Costa Rica, and a slowdown in Ohio construction to align spending with demand.
• For product development, Tan emphasized, “our top priority is delivering our first Panther Lake SKU by year-end,” with additional SKUs planned for the first half of 2026. He also noted ongoing leadership changes in the data center business to be announced next quarter.
• On AI, Tan admitted past shortcomings, stating, “we approached AI with a traditional silicon and training-centric mindset without a cohesive silicon systems software stack and strategy,” and outlined plans to build a full-stack AI solution, focusing on inference and agentic AI.
• CFO David Zinsner reported, “second quarter revenue was $12.9 billion, coming in above the high end of our guidance range,” and explained the impact of one-time impairment and restructuring costs on gross margin and EPS. He stated, “Q2 gross margin was 29.7% and EPS of minus $0.10. Excluding these charges, our second quarter non-GAAP gross margin would have been 37.5% and non-GAAP EPS would have been $0.10, both results ahead of our Q2 guidance.”

Outlook

• The company forecasts Q3 revenue between $12.6 billion and $13.6 billion, with a midpoint gross margin of approximately 36% and breakeven non-GAAP EPS, citing a cautious approach due to recent above-expectation revenue and continued tariff uncertainty.
• Operating expense targets remain at $17 billion for 2025 and $16 billion for 2026. CapEx guidance for 2025 is $18 billion gross and $8 billion to $11 billion net, with lower CapEx expected in 2026.
• Tan reiterated, “I am very confident in our ability to hit our operating expenses targets for 2025 and 2026, respectively.”

Financial Results

• Q2 revenue was $12.9 billion, above guidance, with Intel Products revenue at $11.8 billion, and All Other revenue at $1.1 billion. Operating profit for Intel Products was $2.7 billion, representing 23% of revenue.
• Intel Foundry delivered Q2 revenue of $4.4 billion and an operating loss of $3.2 billion, impacted by $800 million in impairment charges.
• Q2 operating cash flow was $2.1 billion, gross CapEx was $4.5 billion, net CapEx was $3.1 billion, and adjusted free cash flow was negative $1.1 billion. Cash and short-term investments totaled $21.2 billion.
• The company raised approximately $900 million from a Mobileye offering and expects to complete the Altera transaction in Q3.

Q&A

• Ross Clark Seymore, Deutsche Bank: Asked how quickly the x86 and foundry trust can be rebuilt. Tan responded that progress is being made on 18A, with confidence in launching Panther Lake by year-end and the importance of building trust through reliability and yield.
• Seymore followed up on gross margins. Zinsner identified Lunar Lake ramp and early-stage Panther Lake costs as near-term headwinds, but expected Panther Lake to provide a margin tailwind next year as volumes increase.
• Timothy Michael Arcuri, UBS: Queried foundry strategy and 14A development. Tan explained that lessons from 18A are informing 14A, and early customer engagement is building confidence, but CapEx will only be allocated when performance and volume commitments are validated.
• Arcuri asked about CapEx reductions. Zinsner said about half of the $18 billion CapEx is sustaining, and next year’s CapEx will be less than $18 billion but above $9 billion.
• Joseph Lawrence Moore, Morgan Stanley: Asked about Intel 7 supply constraints. Zinsner attributed it to strong Raptor Lake demand, with ongoing capacity investments for Intel 4.3 products.
• Moore asked about construction in progress. Zinsner detailed reductions in assets under construction and plans to maintain optionality for fab space.
• Benjamin Alexander Reitzes, Melius: Asked about server trends and share. Zinsner acknowledged ongoing competitive gaps but noted improvements with Granite Rapids and upcoming products.
• Reitzes queried AI strategy. Tan outlined a focus on inference, agentic AI, and adding more software talent for a full-stack approach.
• William Stein, Truist: Inquired about AI positioning and possible ASIC strategy. Tan described a full-stack solution leveraging x86, openness to new architectures, and collaboration with system companies for purpose-built AI platforms.
• Stein asked about write-downs. Zinsner clarified these were mainly equipment impairments, not inventory.
• Stacy Aaron Rasgon, Bernstein: Questioned 18A/14A timing and foundry sustainability. Tan confirmed commitment to foundry, with cautious CapEx deployment, while Zinsner noted 18A’s long-term utility for internal and eventual external customers.
• Vivek Arya, BofA: Asked about server ASPs and ARM competition. Tan said Intel retains 55% market share and is working to close performance gaps, especially with hyperscalers and high-end enterprise.
• Arya followed up on gross margins. Zinsner said 40%-60% revenue fall-through is a rule of thumb for next year.
• Aaron Christopher Rakers, Wells Fargo: Sought clarity on server roadmap and Diamond Rapids timing. Tan indicated a 2026 target, with ongoing roadmap reviews and new leadership planned.
• Rakers asked about SCIP headwinds. Zinsner said prior guidance remains appropriate, updating as needed in future periods.

Sentiment Analysis

• Analysts expressed pressing concerns over foundry strategy, margin headwinds, competitive positioning, and clarity on CapEx. Questions were direct, with some skepticism around execution and the pace of strategic shifts.
• Management adopted a confident tone in prepared remarks. During Q&A, responses were measured and acknowledged challenges, with Tan stating, “I have a lot more confidence… the culture is changing and you guys are really focused on the yield rather than just the performance.” Zinsner provided clear justifications for margin and CapEx plans, often referencing ongoing reviews and flexibility.
• Compared to the previous quarter, management maintained a similarly optimistic but pragmatic tone, while analysts remained focused on execution and competitive threats.

Quarter-over-Quarter Comparison

• Q2 guidance was more cautious, reflecting three consecutive quarters of revenue above expectations but continued tariff and economic uncertainty.
• Strategic focus shifted further toward financial discipline, with explicit cancellation and consolidation of manufacturing projects not previously disclosed.
• Management’s cost control and organizational streamlining efforts advanced from discussion to execution, with completed headcount reductions and management layer cuts.
• Analyst focus shifted from general transformation and cost structure to more granular questions on foundry viability, CapEx flexibility, and AI product roadmaps.
• Key financial metrics saw modest sequential changes, with Intel Products revenue and operating profit holding steady, while Intel Foundry reported a deeper loss due to impairments.
• Management’s confidence in meeting OpEx and CapEx targets increased, with more concrete plans and milestones cited.

Risks and Concerns

• One-time impairment and restructuring charges weighed on profitability, with $800 million in tool impairments and $1.9 billion in severance and related costs.
• Capacity investments outpacing demand were flagged, leading to project cancellations and consolidation.
• Intel 7 node supply constraints remain a challenge, as does competitive pressure in server CPUs and ARM’s encroachment.
• Tariff uncertainty and regulatory risks continue to impact visibility on demand and cost structure.
• Success of foundry strategy hinges on achieving volume commitments and execution on new nodes (18A/14A), with CapEx tied to external and internal customer adoption.

Final Takeaway

Intel’s management emphasized a decisive shift to financial discipline and operational streamlining in Q2 2025, marked by project cancellations, organizational restructuring, and a renewed focus on core product and foundry execution. The company is steering CapEx to $18 billion with the flexibility to lower it in 2026, while targeting $17 billion in OpEx for 2025. Progress on 18A and Panther Lake remains central, with management confident that improved execution and a disciplined approach to customer commitments will position Intel to rebuild trust, drive returns, and regain competitiveness in key markets.

Read the full Earnings Call Transcript