Summary of Key Points
Intel's financial report for the second quarter of 2026 exceeded expectations, with revenue reaching $16.1 billion, a year-on-year increase of 25%, and a gross margin of 40.4% that surpassed market forecasts. The main driving factor was the increase in CPU prices. Intel also reduced costs through layoffs, but the number of employees still fell short of the target. Its foundry business generated only $300 million in external revenue (accounting for 5%), which is still in its infancy. The guidance for the next quarter is optimistic, but there are concerns about the sustainability of price increases and whether the foundry business can secure large customer orders. In the short term, performance is supported by price hikes; in the long run, Intel's valuation depends on breakthroughs in its foundry operations.
Detailed Analysis
1. The Secret to Outperforming Expectations: CPU Price Hikes
The success of this financial report can largely be attributed to the increase in CPU prices:
- Revenue Surpass: Revenue of $16.1 billion was $1.3 billion higher than Intel's own highest estimate of $14.8 billion, mainly due to price increases for CPUs used in client (PC) and data center applications. For example, PC CPUs faced supply shortages as demand from data centers outpaced production, leading to price hikes of around 10% for consumer-grade CPUs, and similar increases for data center CPUs.
- Gross Margin Surpass: Initially, it was thought that the introduction of new manufacturing processes (such as 18A) would lower gross margins. However, the revenue from price increases offset these costs, raising the gross margin from 39.4% to 40.4%, exceeding market expectations of 37.6%.
- PC Demand Remains Weak: Although global PC shipments declined this quarter, Intel's client business revenue still increased by 12.8%, entirely due to price increases.
2. Layoffs Continue: Still 7,300 Employees Short of the Target
Intel continues to cut staff to reduce costs:
- Cost Reduction: Research and development plus sales expenses totaled $4.54 billion, a year-on-year decrease of 6%, resulting in a lower expense ratio of 28%.
- Employee Numbers: The current workforce is 82,300, a decrease of 900 from the previous quarter. There are still 7,300 employees short of the target of 75,000 by the end of 2025, so further layoffs are expected.
3. Three Business Segments
Intel's business is divided into three main segments:
- Client Business (PC): Revenue was $8.88 billion, a year-on-year increase of 12.8%, entirely due to price increases (combined with product upgrades). However, global PC shipments are still declining.
- Data Centers and AI: Revenue was $6.26 billion, a year-on-year increase of 59%, the fastest-growing segment. The demand for CPUs in AI applications (for resource scheduling and data preprocessing) increased, along with price hikes of 10-20%, leading to both higher volumes and prices.
- Foundry Business: Revenue was $5.77 billion, a year-on-year increase of 30%. However, external foundry revenue was only $300 million (5%), with most of the production going towards Intel's own chips. The 18A manufacturing process has been mass-produced, though it is slightly behind TSMC's in terms of performance. Intel hopes to secure large customer orders (such as from NVIDIA and Google).
4. Market Concerns
Investors are concerned about two main issues:
- Sustainability of Price Increases: Will customers tolerate continued price hikes? AMD is competing by offering combined CPU and GPU solutions, gradually eroding Intel's market share (with server CPU shares now below 80%).
- Foundry Business Profitability: External foundry revenue is very low at only $300 million. The high valuation of Intel's stock is based on the hope that it can secure large orders for its 14A/18A processes from key customers (such as Tesla's Terafab project), but no substantial orders have been confirmed yet.
5. Future Outlook
Intel has set ambitious targets for the next quarter:
- Gross Margin Stability: Management aims to maintain a gross margin of over 40% this quarter, demonstrating confidence in price hikes and cost control.
- Capital Expenditure Increase: Capital expenditure will increase to over $20 billion (a 30% increase) to expand production capacity.
In the long term, the foundry business is key to Intel's valuation. Only by securing large customer orders can Intel reduce its reliance on price hikes and achieve independent growth. Otherwise, concerns about AI investment could continue to affect its stock price.
In One Sentence
Intel is currently relying on short-term gains from price hikes while betting on the long-term success of its foundry business. Price increases will support performance in the short term, but true growth depends on securing large orders for its foundry operations.