Intel reported adjusted first-quarter earnings of $0.13 per share but posted a net loss of $821 million, missing investor expectations and triggering a near 10 percent intraday stock decline as concerns over trade-related headwinds mounted. Despite beating consensus on quarterly sales—$12.7 billion versus $12.3 billion forecast—CFO David Zinsner warned that fluid trade policies, escalating tariffs, and regulatory uncertainties could induce a global economic slowdown and dent future demand. The company’s shares fell 5 percent in extended trading after management forecast second-quarter revenue well below Wall Street estimates at $11.2–$12.4 billion against the consensus of $12.8 billion.

Stockpiling and Uptick in Older Chips

Amid threats of higher U.S. and Chinese tariffs, customers accelerated purchases of existing-generation Intel processors in the first quarter, boosting PC and server chip volumes but complicating inventory planning Michelle Johnston Holthaus, head of Intel’s product division, noted an unexpected revival in demand for older chips as buyers sought to hedge against potential levies on next-generation components. Analysis of shipment data reveals that stockpiling lifted first-quarter sales by an estimated low single-digit percentage, though Intel could not fully quantify the benefit .

The surge in legacy chip orders, while propping up near-term revenue, risks delaying enterprise transition to Intel’s AI-optimized processors, potentially deferring higher-margin product sales and stunting growth in data-center revenues. Analysts warn that prolonged reliance on earlier-generation silicon could undercut Intel’s strategic push into AI accelerators, where it trails rivals like NVIDIA and AMD.

Forecast Risks and Economic Uncertainty

CFO Zinsner emphasized that without clarity on U.S. trade policy and China’s retaliatory tariffs—set to reach 85 percent on U.S.-made semiconductors—forecasting accuracy remains impaired, casting doubt over full-year guidance. He stressed that the unpredictable tariff landscape raises the odds of a recession, which would further compress IT spending and chip procurement globally. Consequently, Intel now expects second-quarter earnings per share to break even, missing the consensus of $0.06, and sees revenue growth stalling amid the trade headwinds.

CEO Tan’s Strategic Response

New CEO Lip-Bu Tan disclosed recent high-level talks with TSMC CEO C.C. Wei and industry veteran Morris Chang to explore supply-chain collaboration and alleviate tariff-induced disruptions. By engaging Intel’s longtime manufacturing partner, Tan aims to secure wafer capacity and jointly navigate export-control constraints that could hobble chip availability in key markets. The discussions coincided with TSMC’s U.S. Technology Day in Santa Clara, signaling potential avenues for cross-licensing and joint R&D initiatives to fortify semiconductor resilience.

Tan announced plans to streamline Intel’s cost structure, targeting $17 billion in operating expenses for 2025—down $500 million from prior aims—and $16 billion in 2026 as part of a broader efficiency drive. The CEO also said that Intel would reassess its global fab footprint, delaying a $28 billion Ohio facility until 2030 to preserve cash and align capacity with demand under trade uncertainty. Layoffs and reductions in administrative overhead, particularly in noncritical meetings and project layers, are expected to trim headcount and boost engineering focus.

Capital Spending and Government Support

Intel has received $7.86 billion in CHIPS Act grants, but the company maintained its 2025 capital expenditure forecast of $8–$11 billion amid uncertainties over the timing of government disbursements. The firm reduced its gross CapEx target to $18 billion in 2025, down from $20 billion, to safeguard liquidity against potential tariff escalations and invest selectively in high-priority nodes.

In response to trade-induced volatility, Intel is conducting a detailed audit of its existing fabrication assets in the U.S., Europe, and Asia-Pacific, with an eye toward consolidating less efficient capacity and deferring new investments until geopolitical risks abate. This approach contrasts with earlier expansion plans and underscores a more cautious capital-allocation stance as trade frictions cloud future demand trajectories .

China Exposure and Market Diversification

China accounted for roughly 20 percent of Intel’s revenue in 2024, making it the chipmaker’s largest single-country market. With Beijing’s threat of 85 percent tariffs on U.S.-made CPUs and projectiles of additional levies on semiconductors, Intel faces potential revenue erosion of up to $6 billion annually if duties are fully passed on and volume contracts.

To reduce dependence on any one geography, Intel is accelerating partnerships in Europe and India, exploring local assembly for certain product lines, and diversifying supply chains into Southeast Asia. The strategy aims to mitigate tariff exposure while accessing growing digital infrastructure markets outside China’s jurisdiction.

Investor Sentiment and Strategic Implications

Following the downbeat forecast, Intel’s stock has lost 38 percent over the past year, underperforming peers in the semiconductor space and reflecting investor skepticism about management’s ability to navigate the trade turmoil . Equity analysts caution that until tariff policies stabilize, Intel may struggle to regain market share in the AI segment and sustain margins amid cost headwinds.

While the immediate impact of trade tensions has manifested in softened guidance and operational belt-tightening, Intel’s deep engineering talent and CHIPS Act support position it to rebound if global trade frictions ease and near-term capacity is reconsolidated . Continued dialogue with partners like TSMC and disciplined capital deployment could underpin a gradual recovery, though the timing remains contingent on U.S.–China policy developments .

(Adapted from CommunicationsToday.co.in)