Intel's Challenging Path: Turnaround Efforts Amid Market Skepticism

Intel: Disappointing Short-Term Result, But Patience Is Required (NASDAQ:INTC)

With Intel selling at a decade-low valuation, a split makes sense since the most expensive phase of the strategy is reaching its end. Intel Corporation (NASDAQ:INTC) reported disappointing FY2024 Q2 results. While revenue is within their guidance, the gross margin and the disappointing Q3 outlook led to a nearly 26% plunge in the stock price. While I expected them to have a bad financial performance since this is the most expensive year, as they start scaling their EUV nodes and outsource some of their wafers to TSMC (TSM), I didn't expect them to be this severe. Regardless, I believe this is a good opportunity to buy more because, despite the bad near-term result, the long-term fundamentals of the business haven't changed. Before the earnings call, they announced a 15% workforce layoff to achieve a 'clean sheet' view of their business, which will eliminate complexity and maximize the impact of their resources. They should've taken this step when they announced the separation of Intel Product and Intel Foundry; management might have been too optimistic and overestimated the market recovery. Regardless, this is a necessary step since Intel's productivity at its current state isn't competitive with the rest of the industry. The table above clearly shows that Intel needs to be more efficient and productive, as the industry generates significantly more revenue per employee than they are. However, this is also risky, as the falling stock price and layoffs might further affect the company's morale and productivity. The layoff being targeted instead of company-wide indicates that people crucial for the strategy to succeed won't be affected. Despite these challenges, Intel needs to take these drastic steps to be competitive against TSMC and other fabless chip designers in terms of cost structure, efficiency, and productivity. After expecting strong second-half growth due to above-seasonality in their Q1 2024 earnings, Intel now expects the market recovery to be softer than originally anticipated. While we expect to deliver sequential revenue growth through the rest of the year, the pace of the recovery will be slower than expected, which is reflected in our Q3 outlook. Specifically, Q3 will be impacted by a modest inventory digestion in CCG with DCAI and our more cyclical businesses of NEX, Altera, and Mobileye trending below our original forecast. Meanwhile, AMD (AMD) told analysts in its Q2 2024 earnings call that it expects an above-typical seasonality. Our view of this is the AI PC is an important add to the overall PC category. As we go into the second half of the year, I think we have better seasonality in general, and we think we can do, let us call it above-typical seasonality, given the strength of our product launches and when we are launching. And then into 2025, you're going to see AI PCs across sort of a larger set of price points which will also open up more opportunities. This is a conflicting outlook; one side is optimistic, while the other is not. However, due to its scale in the PC business, Intel's outlook is a better barometer for the PC market outlook in the near term than AMD's, which is smaller. We have to remember during their call in Q2 2022, Intel was the first company to warn the market about weaker PC demand in the second half of 2022, while AMD, at that time, had more of an optimistic outlook. They eventually followed suit and issued the same warning to the market. Ultimately, the OEM's outlook in their upcoming earnings call will confirm who is right and wrong, but my bet is on Intel due to their size. There are also concerns about market share and the competitiveness of their products. AMD still has the advantage in efficiency due to its use of a much better node, TSMC 4nm, compared to Intel. However, Intel has managed to close the gap with its Meteor Lake product in the form of the Core Ultra 1xx series. Yet, most of its client products are still on the Intel 7 node, which requires a higher power draw to remain competitive. Since 2022, Intel and AMD's revenue share has hovered around 80% and 20%, respectively; I believe this is a healthy market share since OEMs want an alternative supplier to offset the supplier's bargaining power. Another point of concern is Intel's competitiveness against AMD and Qualcomm (QCOM), which, I believe, is a bit overstated since, nowadays, the performance of these CPUs is very close to each other. Thus, the competing factor will be on the CPUs' other offerings, such as security or software. In PC, there are two types of customers: consumer and business. Both customer types value PCs differently: consumers tend to irrationally value things like experience, aesthetics, and ease of use, while businesses value security, availability, and price. On the consumer side, Intel is trying to influence OEMs through programs such as Intel Evo certification to match the experience of Apple's MacBook. However, they could only do so much since the OEMs and Microsoft do most of the integrations. On the business side, the decision-makers are usually the CIO, CISO, or IT heads. Unlike on the consumer side, where they value other things besides the price, enterprise customers prioritize security, availability, and cost, where Intel is strong with its Intel vPro offerings and scale. Even with the entry of more chipmakers that use ARM architecture, I believe Intel will be fine in this area since future innovations will sustain ones like improved performance and efficiency, which incumbents usually do very well. They have prioritized efficiency in their recent chip designs, since the market demands more efficiency than performance. However, the further commoditization of the PC CPU industry is an increasing concern. While differentiating itself on other aspects of its CPU, Intel needs to keep up with the competition. Otherwise, the performance gap will be so big that their advantage in security and software won't be enough to entice customers to stick to their offering. Out of all the businesses under Intel, this is the weakest. They are losing market share to AMD, with their EPYC offering more performance and cores, especially in the cloud segment. Additionally, their minimal AI presence in the high-performance accelerators, where Nvidia currently dominates, is really showing in their revenue performance, which has stagnated since 2023. However, market share is a lagging indicator; it reflects the previous management's past missteps on Sapphire Rapids and Larrabee. Now, it is getting back to Intel under new management that is taking all the heat. Nevertheless, let's focus on what Intel is doing to improve its position. With manufacturing no longer a hindrance to its server CPUs, Intel recently launched its E-core server, offering Sierra Forest for high-density workloads. In addition, Intel is expected to launch its P-core brother, Granite Rapids, for high-performance workloads in Q3. These two products will match the competition in core count and performance: Granite Rapids with 128 P-Cores and Sierra Forest with 288 E-Cores. Additionally, as investors slowly start scrutinizing and demanding tangible results from AI investments made by businesses and cloud players, CAPEX prioritization for GPU might normalize and start to favor CPU. Since 2022, the CAPEX allocation has heavily favored GPU over CPU, so there are a lot of server CPUs that need to be refreshed; this could benefit Intel since it will enter this refresh cycle at its strongest position in terms of product competitiveness. However, this assumption is still uncertain since companies, desperate to improve or retain their competitive position, are still heavily prioritizing their CAPEX on AI. Whichever scenario plays out, Intel needs to strengthen its position in AI accelerators with its Gaudi 3 and upcoming Falcon Shores. Intel has not only failed to benefit from the AI boom through its accelerators but also in its foundry, at least for now. While TSMC is running short of capacity to cater to the huge demand from AI chipmakers, Intel fabs are currently underutilized mainly due to Intel product's low revenue, resulting in a run rate of around $2.5B operating loss per quarter due to its high fixed cost and start-up cost on their EUV nodes that will start to ramp this year. So why is Intel Foundry not benefiting from the AI boom despite being one of the only three manufacturing companies-TSMC, Intel, and Samsung-that can only produce leading-edge wafers required to produce AI chips? It is crucial to know that chip design wins for a foundry don't happen overnight, in days, months, or even a year. Some upcoming chips from designers are already planned to use that specific wafer node years before they're even released. Intel CEO Pat Gelsinger perfectly sums up this in his interview with Stratechery. In no way do I think that just because we've now demonstrated 18A, we've given the first PDKs (Process Design Kit) for it, the world is going to say, "Oh, let's stop doing all that 3 nanometer stuff and let's move over here", that's not going to happen. But I am pretty dead set that we are going to capture major designs because everybody, when they finish their 3 nanometer designs, they're going to say, "What's next?", and the combination of RibbonFET and PowerVia is proving to be very compelling. Compelling on area, compelling on performance, compelling on power capabilities. Furthermore, even though their leading-edge node is already manufacturing-ready, reaching a meaningful volume ramp takes 6 months to a year. If we look at Intel's forecast of their wafer mix in the upcoming years, it is clear that it will take years before their EUV node mix makes up most of their wafer outputs. EUV nodes achieving scale is crucial for Intel Foundry achieving break-even because having the majority of their wafer outputs on Intel 7 puts significant pressure on the foundry's margin. However, as their mix of EUV nodes starts to take up most of their wafer mix, their operating margin should also improve as these EUV nodes constitute a higher margin. While Intel's expensive venture might be a short-term pain for Intel investors, it is important to emphasize that there cannot be a sole supplier of leading-edge wafers in this important industry. This industry will fuel all future technological innovation, including AI, and only three companies can do this. Furthermore, Intel doesn't even have to be the leader in this space, at least for now, for this endeavor to succeed. However, Intel must offer a compelling value proposition to entice customers to switch from TSMC. Otherwise, I see them as merely an alternative supplier for fabless companies looking to diversify their supply chains. But given Intel Foundry's current state, where they are losing billions of dollars, any win-regardless of whether it's just for supply chain diversification-is a major victory for Intel. While Intel's valuation is at an all-time low, its problems are fixable; just split the company into two independent ones to unleash its value to the market. I believe Intel is an excellent target for an activist investor at this current valuation. Especially at this point, when the most expensive phase of the company's strategy is peaking this year and expected to normalize moving forward as their post-EUV nodes start ramping, and they return to the normal cadence of wafer node technology development. In their recent earnings call, Intel CEO Pat Gelsinger prepared remarks on what's beyond Intel 18a. Beyond Intel 18A, we are well underway on Intel 14A and Intel 10A development. Even as we continue to extend leadership and innovation on our process roadmap, we are transitioning to a more normal cadence of node development. The normalized cadence will have positive implications for both pace and magnitude of on-going R&D and capital spending requirements. After achieving the '5 nodes in 4 years' strategy by 2025, Intel plans to return to a normal process of technological development cadence, which will ease their capital intensity in R&D moving forward. Let's valuate the fabless Intel or Intel Products to determine its intrinsic value if the split plays out. Note that in my previous Intel article, I used a similar method, but this time, I will include Intel Foundry to estimate the total value investors could get if they are to be separated tomorrow. Despite all the negativity surrounding this stock, you can't deny that Intel Products are profitable. If separated, you have a run rate of around $12B operating profit. I will relatively valuate the fabless Intel to its fabless peers such as AMD, Nvidia, Qualcomm, Broadcom and Apple using their current EV/EBIT multiple. Since there are some outliers in the table above, I will subjectively use a 20x EV/EBIT multiple on Intel, which, I believe, is reasonable considering the potential of Intel AIPC and upcoming server and accelerator chips moving forward. On Foundry, since there's not much clearer information about when some of the $15B lifetime value will start to come in for Intel Foundry, we instead use what's on their current P&L presentation, which is the revenue coming from manufacturing for the Intel Products team. While I expect them to lose some of the revenue from Intel Products, with Intel Products outsourcing a portion of their wafers from TSMC, I expect most of the Intel Products to return to Intel Foundry as they scale their EUV node in the coming years. Thus, we can settle at around $18B revenue run-rate. TSMC, being the leader, clearly deserved that EV/Revenue multiple. While Intel is undoubtedly losing money due to the unfavorable wafer mix and start-up cost of EUV nodes, we must acknowledge that only three companies-TSMC, Samsung, and Intel-will have the capability to operate in this space due to how capital-intensive this business is in terms of R&D and CAPEX. Thus, the barriers to entry in this industry are high. Nonetheless, I will subjectively use a 2 EV/Revenue multiple to valuate Intel Foundry, which, I believe, is reasonable and conservative considering its current state. An intrinsic value of $63 per share implies a discount of around 70%. I know this sounds silly, but that's what Mr. Market thinks Intel's current value is because of its recent performance. This doesn't even account for their stake in Mobileye and the upcoming Altera spin-off. Intel Foundry Reliability on Intel Products According to Intel CEO Pat Gelsinger, the economics of the Intel Foundry heavily depend on the success of Intel Products, which poses a significant risk. The foundry's success is closely tied to the demand for Intel Products, which faces significant competition. Long Lead Time on Building Leading-Edge Fabs It takes 5-6 years to build a leading-edge semiconductor fab. This long lead time presents a significant risk, as the assumptions made before the investment could be entirely inaccurate by the time the fab is operational. Additionally, Intel's competitors, such as TSMC and Samsung, may have the same assumptions for the future, which can lead to overcapacity. Intel undoubtedly faces significant challenges as it navigates this near-term uncertainty. But Mr. Market's short-term thinking has given us, long-term investors, an opportunity to buy more at a lower price. But does this mean that, with the price at a decade-low, it will be smooth sailing to the upside from here? No one can say for sure. However, I firmly believe that patient Intel investors who resist the urge to follow Mr. Market's action will get rewarded in the long run.

Intel: Why A Turnaround Seems Unlikely (NASDAQ:INTC)

Valuations seem to bake in a bit of an undeserved semi + AI-theme in my view as the stock still trades above its long-term average multiple. The technicals suggest a multi-year lag vs the S&P500 going ahead. As familiar readers would know, I always start my follow-up updates with a performance assessment. Sometimes, I get things very wrong. But that is not the case here with Intel (NASDAQ:INTC). My 'Sell' view has played out rather well, generating an active return of +30.92% so far vs the S&P500 (SPY) (SPX): Intel delivered a shocker in its Q2 FY24 results. The company seems to be making desperate moves to save costs as it strives to catch up with competitors from a lagging position in the technology curve. In my previous articles, I have discussed Intel's technological issues at greater length, mentioning how Taiwan Semiconductor Manufacturing Company (TSM) (OTC:TSMWF) remains ahead, and how players such as Arm Holdings (ARM), AMD (AMD) and NVIDIA (NVDA) are gaining share. This time, I'm focusing more on the implications of what investors in Intel can expect from a FCF return perspective and why management's narrative ought to be ignored: As Intel invests in its Foundry, the company's FCFs have been bleeding for the last 9 consecutive quarters. The FCF margins (which I've computed using TTM FCF/TTM Revenues) are deeply negative at 22.8% as of the latest quarter. Looking at the outlook, consensus estimates data from Capital IQ point toward the market's expectations of negative FCFs for at least the next 4 years: FY24 in particular is expected to lead to a big FCF burn of $19 billion, implying a -36.7% FCF margin. Now, I am very skeptical that Intel's investments would prove fruitful wherein they catch up in the technology curve. Considering this, coupled with the fact that I think the value of a company is equal to the present value of its future cash flows, I believe the current FCF outlook for Intel is a strong deterrent for investing in the stock. Intel's management has been pitching a major transformation story for the company. However, the company has consistently fell short of expectations. In my last article, I had shared data on the company's beat vs miss track record. Whilst the company missed again in Q2 FY24 on both revenues (1.14% miss and EBITDA margins (204bps miss), I draw your attention to the even more concerning guidance disappointments: Revenue guidance for Q3 FY24 came in almost 10% below consensus expectations. This amounts to 2 ~10% disappointments in the last 3 quarters. Still, this is nothing compared to the recent history of EPS guidance shockers: The market was taken aback by the fact that Intel is on-track to post EPS losses this year, as reflected by the steep consensus EPS downgrades: Now, bad results may be forgivable. However, I believe poor communication is not. Although Intel gave a revenue guidance update before Q2 FY24 results (indicating the lower-end of the $12.5-13.5 billion range. Actual was $12.8 billion), management also indicated that full-year EPS is still expected to grow in 2024 vs 2023. Yet, that is no longer the case now, as indicated by the consensus EPS numbers. No profit warning was announced by the company to restate expectations from positive EPS growth to a 70% EPS decline in FY24. Such gross lack of proactive communication and transparency seems to have been the tipping point for some disgruntled investors who have sued the company for allegedly concealing key issues. This just adds fuel to the fire, stoking the woes of Intel. Given the disappointing lack of transparency, poor execution and the prospects of funding Intel's foundry technology investments for multiple years, despite a perceived low chance of success in it catching up in the technology curve, I believe Intel is a stock to stay away from no matter how cheap it may seem. Nevertheless, I notice that at 8.3x, the stock still trades at a 16% 1-yr fwd EV/EBITDA premium to its longer term average of 7.5x: This premium may be attributed to the broader bullishness in the semiconductor market, as the sector enjoys high demand from new AI applications. Still, I think for the consistently underperforming Intel who is losing share vs competitors, the premium is not deserved. Hence, even if valuations were a key consideration, it doesn't look attractive for investment in my view. If this is your first time reading a Hunting Alpha article using Technical Analysis, you may want to read this post, which explains how and why I read the charts the way I do. All my charts reflect total shareholder return as they are adjusted for dividends/distributions. On the relative yearly chart (every candle represents 1 year) of Intel vs the S&P500, I notice a Wyckoff distribution pattern that is playing out with the first breakout of the range triggered via the 38% fall in the stock post Q2 FY24 results. I believe this spells a rather gloomy outlook for the stock over the next few years and even decades (since this technical read is based on the yearly chart; a decade is represented in only 10 candles). I do believe Intel is making the right and necessary moves for the company in cutting costs and restructuring to extend the financial bandwidth for funding their aspirations to catch up in the foundry technology curve. However, I fear that these corrective actions may be too late. Even if Intel's management is making the best decision to restructure the company, the company still has to dig itself out of a deep financial hole as it invests to hopefully emerge as a technology competitor let alone leader once again. A key thing to monitor for my thesis would be to track Intel's product progress coupled with the quarterly financial results. On the product progress side, Intel's 18A is a key semiconductor chip that the company is relying on to regain foundry process leadership vs TSMC. Recently, Intel shared that this chip is out of the development phase and has started to boot operating systems, which is a key milestone: Intel expects the 18A's final stage design and manufacturing with an external client to commence in H1 FY25. This is the next key milestone to track. It is noteworthy that this timeline has been delayed a bit, since previous expectations were that the 18A would be ready for manufacturing in H2 FY24. My earlier bearish view on Intel has been playing out well, generating an active return of almost 31% vs the S&P500. After Q2 FY24 results, I am continuing with my 'Sell' stance on the stock. I believe long term investors in Intel need to reconcile with potentially having their investment be dead money for at least the next 4 years, as FCF is expected to continue declining. Intel delivered guidance shockers on revenue and even more on EPS in Q2 FY24. I believe there ought to have been more proactive and transparent communication to inform the market of huge (from FY24 EPS growth expectations to a ~70% EPS decline scenario in FY24) revised expectations via a profit warning prior to the Q2 FY24 results release. I also don't find valuations compelling and technically, relative to the S&P500, it looks like INTC is likely to underperform the S&P500 for multiple years and potentially more than a decade in my opinion. Strong Buy: Expect the company to outperform the S&P500 on a total shareholder return basis, with higher than usual confidence. I also have a net long position in the security in my personal portfolio. Buy: Expect the company to outperform the S&P500 on a total shareholder return basis Neutral/hold: Expect the company to perform in-line with the S&P500 on a total shareholder return basis Sell: Expect the company to underperform the S&P500 on a total shareholder return basis Strong Sell: Expect the company to underperform the S&P500 on a total shareholder return basis, with higher than usual confidence The typical time-horizon for my views is multiple quarters to around a year. It is not set in stone. However, I will share updates on my changes in stance in a pinned comment to this article and may also publish a new article discussing the reasons for the change in view.

Is Intel Stock a Discounted Buy or a Hidden Pitfall? | Investing.com UK

Entering August, Intel Corporation (NASDAQ:INTC) has the lowest price-to-book (P/B) ratio in five years at 0.73. For comparison, Intel's P/B was at 3.7 in January 2020. In other words, investors valued Intel at over 3x its book value (how much would it be worth if it were to be liquidated), indicating a positive outlook on the company's future growth. Intel's P/B ratio has dropped so severely, with the market valuing the company at only 73% of its book value, indicating a 180-degree turn on investor sentiment. At the same time, Intel's price-to-earnings (P/E) ratio is still highly elevated, currently at 85.48. The divergence between Intel's P/B and P/E points to a classic conundrum for investors: Is it a value trap? On one hand, with a 59% year-to-date decline, INTC stock may appear at a compelling discount. On the other hand, Intel's low P/B ratio could be justified based on deteriorating earnings and past mishaps, with investors expecting recovery that may fail to materialize. Does Intel's most recent Q2 earnings report provide an answer, or is there more to the company's prospects? On August 1st, Intel posted its Q2 2024 financial results, showing a year-over-year revenue decline of 1% to $12.8 billion. The chipmaking company generated a $1.6 billion net loss, opposite to its $1.5 billion net gain in the year-ago quarter of Q2 2023. With earnings per share down 85% to negative $0.38 from positive $0.35 EPS in one year, Intel significantly missed the expected consensus estimate of positive $0.10 EPS. Intel CFO David Zinsner pointed the culprit to "gross margin headwinds from the accelerated ramp of our AI PC product." Intel's gross margin, as the leftover revenue percentage after accounting costs, went down 0.4 ppt from 35.8% in Q2 2023. Considering that the semiconductor sector is both highly competitive and its average gross profit margin is 42.1%, this is bad news. After all, in such a sector, for earnings to be justified, gross margin would at least have to show an upward trajectory. But, it is only bad news if Intel's investment doesn't materialize, which is why Zisner pointed to AI PC to make the case that the company is not a value trap. In October 2023, Intel announced its AI PC acceleration program, forecasting AI over 100 million PCs by the end of 2025. Following Nvidia's lead as it rapidly took a dominant stake in the data center market, the program is all about connecting vendors with Intel's software and hardware stacks, primarily powered by Intel Core Ultra processors. This is highly promising given the program's inclusion of prominent software vendors such as Adobe (NASDAQ:ADBE), CyberLink, Audacity, Rewind AI, Zoom (NASDAQ:ZM), and others. Because AI PC covers such a wide range of uses, from gaming and security to content creation, Intel is hoping to replicate Nvidia's success. Furthermore, although Intel expects its competitive Gaudi 3 AI chips to only bring $500 million revenue throughout 2024, the delayed rollout of Nvidia's Blackwell chips into Q1 2025 is likely to open more space for growth. Long term, Intel counts on further miniaturization efforts. In 2025, Intel is scheduled to launch 18A node process architecture. At 1.8 nm transistor packing, it is purportedly 10% performance per watt improvement over the 20A (2 nm) process. For Intel's expansion into the data center demand dominated by Nvidia (NASDAQ:NVDA), the PowerVia backside feature for improved power distribution is also to make a compelling case. Of course, these rollouts are currently clouded by the multi-year embarrassment over the power stability of Intel's 13th and 14th generation chips. At the end of July, Intel confirmed that elevated operating voltage resulted in the permanent degradation of these CPUs, but that no mass recall will be forthcoming as the mid-August microcode patch will have to suffice. Nonetheless, Intel has the advantage in actively building its chip foundries against its fabless competitors Nvidia and AMD (NASDAQ:AMD). Both are reliant on TSMC capacity, while Intel plans to rank as the second world chip foundry by 2030, nestled between TSMC and Samsung (KS:005930). Unfortunately, there are some major issues with that plan. When looking at Intel's long-term valuation, it is difficult to extricate the company's bottom line from geopolitics. As the world's top chip foundry, TSMC expanded great efforts to alleviate China-US tensions over Taiwan by diversifying into other regions. While Intel lacks Taiwan's liability, it could be said that tying its foundry fortunes to Israel, an even more volatile region, is riskier. This is evidenced by the halted $25 billion expansion in June. De facto, both Taiwan and Israel are under the US military protectorate, which may or may not be sufficient to assure investors. On the homefront in the US, this would prove a great opportunity for semiconductor companies to expand with effectively zero security risk. ***

Intel: Too big to turn, too vital to fail

Intel's disastrous second-quarter report this month has put the struggling chip maker in a whole new light -- and not a good one. Falling sales in key markets and rising costs for its ambitious manufacturing turnaround have forced the company to take more drastic steps to conserve cash. Those include laying off 15% of the workforce, cutting the capital expenditures used to build and equip production facilities and suspending the dividend that Intel has paid since 1992. The latest reboot has investors unplugging en masse. Intel lost a little more than a quarter of its market value the day after its Aug. 1 earnings report, and the stock has shed another 8% since -- worse than the drubbing seen by most other chip stocks in this past week's global selloff. Intel shares have now lost about 68% since Chief Executive Pat Gelsinger first articulated his turnaround plan after rejoining the company in early 2021. The S&P 500 is up 39% over that time. Intel is also now trading below the company's book value for the first time since at least 1981, which is as far back as data from FactSet goes. This means investors are now valuing one of the world's largest chip manufacturers for less than the value of its facilities and other assets on its balance sheet. But those facilities are also the key to Intel's staying power. The pandemic's disruptions and other forms of global instability over the past few years have awakened political leaders on both sides of the aisle to the importance of shoring up domestic production of such a key component of modern life. And chip fabrication plants can't be spun up overnight -- or on the cheap. Modern fabs require years to build and equip and now cost around $20 billion. That is why the U.S. government is kicking in. The Chips Act passed in 2022 outlined $39 billion in direct grants to chip makers to help with the cost of building new facilities. Intel has been the largest beneficiary, landing $8.5 billion of that pot that is helping to fund the building of new fabs in Arizona and Ohio. Intel is already the biggest fish in the American pond; the company's current fabs account for about 41% of the country's 300 mm wafer production capacity -- the type of chip production most commonly used in key market segments -- according to market research firm TechInsights. But a big part of Intel's current problem is that the chips it makes for itself aren't selling as well as they used to. The company's once-booming data center business, in particular, has been hit hard as it has lost share in server CPU chips to Advanced Micro Devices. It also has seen a sharp shift in data center budgets to Nvidia's GPU accelerators, which are key to powering generative artificial-intelligence services. Intel's data center revenue is projected to hit $12.6 billion this year, less than half its peak just four years ago, according to consensus estimates from Visible Alpha. The rapid shift to spending on AI -- and Nvidia in particular -- wasn't something contemplated when Intel laid out an ambitious and expensive plan to catch up its manufacturing processes to those of Taiwanese rival TSMC three years ago. "The issue, in our view, is that the server-centric data center Intel built their fabs to serve no longer exists, replaced by AI spending that Intel missed," wrote Chris Caso of Wolfe Research in a recent note to clients. That has also contributed to Intel's fabs being underutilized -- an expensive problem for chip manufacturers who have high fixed costs. Underutilization charges contributed to Intel's adjusted gross margin coming in at a shocking 38.7% in the second quarter, 5 percentage points lower than Wall Street expected. Wall Street is divided on where Intel should go from here. Some analysts think it needs to focus on regaining product leadership, even if that comes at the expense of the foundry business the company is building to serve other chip designers. Others think the company needs to focus on getting more major customers for the foundry side, since Intel's chances of getting competitive in key markets such as data center GPUs look slim. None of those paths will be quick, though. And loss of the dividend leaves Intel investors with little to hang on to; it is now one of only three Dow components not paying one. But Intel's large role in what is now deemed an industry vital to national security also provides a floor of sorts. In his report, Caso noted that "given the sensitivity toward domestic U.S. semiconductor production, we doubt the U.S. government would allow for Intel's problems to become terminal." Uncle Sam might be the biggest bull in Intel's pen for a long while.