Disappointing Q2 Drives Intel to Cut Workforce by 15% and Restructure

Intel reported disappointing financial results for the second quarter of 2024, prompting the tech giant to announce comprehensive job cuts and restructuring measures. The company revealed a 1% year-over-year decline in revenue to $12.8 billion, alongside a GAAP loss per share of $0.38. Non-GAAP earnings per share were reported at $0.02. The lackluster performance has led to a decision to implement a more than 15% reduction in headcount to resize and refocus the company.

Restructuring Efforts

Intel’s restructuring plan includes several key elements aimed at creating a sustainable financial engine that will support long-term growth and innovation. The company has outlined a structural and operating realignment across its divisions, targeting more than $10 billion in operating expense and capital expenditure reductions by 2025. Key priorities of the plan include:

1. Reducing Operating Expenses: Streamlining operations with a significant cut in R&D and marketing, general and administrative expenses, aiming for $20 billion in 2024 and $17.5 billion in 2025.
2. Reducing Capital Expenditures: Aligning capital investments with market requirements, projecting a 20% reduction in gross capital expenditures for 2024, targeting $25-$27 billion.
3. Reducing Cost of Sales: Generating $1 billion in savings in non-variable cost of sales by 2025.
4. Maintaining Core Investments: Continuing to invest in long-term innovation and technology leadership, with a focus on building a resilient semiconductor supply chain.

Additionally, Intel has decided to suspend its dividend starting in the fourth quarter of 2024 to prioritize liquidity and support strategic investments. Despite this, the company remains committed to reinstating a competitive dividend as cash flows improve.

Q2 2024 Financial Performance by Business Unit

• Client Computing Group (CCG): Revenue of $7.4 billion, up 9% year-over-year.
• Data Center and AI (DCAI): Revenue of $3.0 billion, down 3% year-over-year.
• Network and Edge (NEX): Revenue of $1.3 billion, down 1% year-over-year.
• Total Intel Products Revenue: $11.8 billion, up 4% year-over-year.
• Intel Foundry: Revenue of $4.3 billion, up 4% year-over-year.
• Altera: Revenue of $361 million, down 57% year-over-year.
• Mobileye: Revenue of $440 million, down 3% year-over-year.

Q2 2024 Financial Highlights

• Revenue: $12.8 billion, down 1% YoY.
• GAAP EPS: $(0.38); Non-GAAP EPS: $0.02.
• Forecast for Q3 2024: Revenue between $12.5 billion to $13.5 billion; GAAP EPS: $(0.24); Non-GAAP EPS: $(0.03).

Key Points:

• Second-quarter revenue of $12.8 billion, down 1% YoY.
• Second-quarter GAAP earnings (loss) per share (EPS) attributable to Intel was $(0.38); non-GAAP EPS attributable to Intel was $0.02.
• Forecasting third-quarter 2024 revenue of $12.5 billion to $13.5 billion; expecting third-quarter GAAP EPS attributable to Intel of $(0.24); non-GAAP EPS attributable to Intel of $(0.03).
• Implementing comprehensive reduction in spending, including a more than 15% headcount reduction, to resize and refocus.
• Suspending dividend starting in the fourth quarter of 2024. The company reiterates its long-term commitment to a competitive dividend as cash flows improve to sustainably higher levels.
• Achieved key milestones on Intel 18A with the 1.0 Process Design Kit (PDK) released and key power-on of first client and server products on Intel 18A, Panther Lake and Clearwater Forest.

Intel CEO Pat Gelsinger and CFO David Zinsner’s Statements

Intel CEO Pat Gelsinger emphasized the company’s commitment to improving operational efficiency and accelerating its IDM 2.0 transformation despite the disappointing Q2 results. CFO David Zinsner highlighted the steps being taken to strengthen Intel’s financial position through spending reductions and strategic investments.

“Our Q2 financial performance was disappointing, even as we hit key product and process technology milestones. Second-half trends are more challenging than we previously expected, and we are leveraging our new operating model to take decisive actions that will improve operating and capital efficiencies while accelerating our IDM 2.0 transformation,” said Pat Gelsinger, Intel CEO. “These actions, combined with the launch of Intel 18A next year to regain process technology leadership, will strengthen our position in the market, improve our profitability and create shareholder value.”

“Second-quarter results were impacted by gross margin headwinds from the accelerated ramp of our AI PC product, higher than typical charges related to non-core businesses and the impact from unused capacity,” said David Zinsner, Intel CFO. “By implementing our spending reductions, we are taking proactive steps to improve our profits and strengthen our balance sheet. We expect these actions to meaningfully improve liquidity and reduce our debt balance while enabling us to make the right investments to drive long-term value for shareholders.”

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Fiber Connect 2024: Panel Discussion on Federal Broadband Policy

At the Fiber Connect 2024 conference in Nashville, TN, telecom industry leaders gathered to discuss the implementation of the $42 billion Broadband Equity, Access and Deployment (BEAD) program. The panel, featuring executives from AT&T, Lumen Technologies, Altice USA, and C Spire, highlighted both the opportunities and challenges presented by this unprecedented federal investment in broadband infrastructure.

Participants

Rhonda Johnson, Executive Vice President of Federal Regulatory Relations, AT&T

Melissa Mann, Senior Vice President of Public Policy and Government Affairs, Lumen Technologies

Christina Chou, Vice President of Federal Affairs, Altice USA

Chris Champion, Vice President of Government Relations, C Spire

Moderator: Marissa Mitrovich, Vice President of Public Policy, Fiber Broadband Association

Key takeaways from the discussion include:

Economic Challenges: Panelists emphasized that BEAD-targeted areas are inherently difficult to serve economically. They stressed the importance of ensuring that program requirements and pricing structures are grounded in the actual costs of serving these communities.

Regulatory Complexity: Each state has different criteria for BEAD implementation, creating a complex landscape for providers operating across multiple states. Companies are dedicating significant resources to evaluating each state's program.

Compliance Burden: The BEAD program introduces new compliance requirements, including procurement rules and long-term reporting obligations. This creates additional operational complexity for providers.

Affordable Connectivity Program (ACP) Concerns: With the recent end of the ACP, providers expressed concern about maintaining affordable access for low-income customers. They called for a long-term, sustainable funding solution for broadband affordability programs.

Legacy Network Challenges: Panelists highlighted the need to align BEAD goals with existing regulations on legacy copper networks. They argued that requirements to maintain older technologies divert resources from fiber deployments.

Fiber First Strategy: While acknowledging the role of other technologies, most panelists emphasized a fiber-first approach in their deployment strategies, citing its superior performance and future-proof nature.

Coordination with State and Local Authorities: Executives stressed the importance of early and frequent communication with state broadband offices and local authorities to address permitting, right-of-way, and other deployment challenges.

Education on Fiber Benefits: While progress has been made, panelists noted the ongoing need to educate policymakers and the public about the benefits of fiber broadband across various sectors, including healthcare and education.

The panel concluded by urging state broadband offices to maintain flexibility, transparency, and a long-term view as BEAD funding begins to flow. They emphasized that while securing funding is a milestone, the real work of expanding broadband access is just beginning.

Special thanks to Doug Mohney for gathering material for this summary.

https://fiberconnect2024.eventscribe.net/agenda.asp?startdate=7/31/2024&enddate=7/31/2024&BCFO=EXT|G|M|P&pfp=FullAgenda&mode=&fa=&fb=&fc=&fd=

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Telefónica Reports Steady Growth and Strong Financial Performance in H1 2024

Telefónica has released its financial results for the first half of 2024, showcasing solid revenue growth, improved profitability, and significant progress on strategic initiatives. The telecommunications giant reported a net income of €979 million, marking a 28.9% increase compared to the same period last year. Telefónica’s performance aligns with its GPS strategic plan, emphasizing growth, profitability, and sustainability.

Revenue for the second quarter grew by 1.2% to €10,255 million, while the first half saw a 1.1% increase to €20,395 million. Operating income before depreciation and amortization (EBITDA) also showed positive trends, rising by 1.8% in Q2 to €3,219 million and by 1.9% in the first half to €6,424 million. The company has reaffirmed its financial targets for 2024, projecting revenue growth of around 1%, EBITDA and operating cash flow growth between 1% and 2%, and a CapEx over revenue ratio of up to 13%.

Key Points:

• Revenue Growth: Increased by 1.2% in Q2 to €10,255 million and by 1.1% in H1 to €20,395 million.

• EBITDA: Grew by 1.8% in Q2 to €3,219 million and by 1.9% in H1 to €6,424 million.

• Financial Targets for 2024:

• Revenue growth of around 1%.

• EBITDA and operating cash flow growth between 1% and 2%.

• CapEx over revenue ratio up to 13%.

• Free cash flow increase of more than 10%.

• Shareholder Remuneration: Confirmed dividend of €0.30 per share, payable in two tranches of €0.15 each in December 2024 and June 2025.

• CapEx: €2,299 million in the first half, down 3.9% from the same period in 2023, maintaining an investment-to-revenue ratio of 11.3%.

• Customer Base: Reached 392 million, a 2.2% year-over-year increase, with significant growth in fiber accesses (+12.1%) and mobile contract customers (+3.3%).

• 5G Expansion: Spain achieved 89% population coverage, Germany 96%, Brazil 50%, and the UK 65%. 5G Stand Alone has been commercially launched in the four major markets.

• Sustainability: Telefónica named one of the Top 10 World’s Most Sustainable Companies by TIME magazine and ranked as a sector leader in the FTSE4Good Index Series.

https://www.telefonica.com/en/communication-room/press-room/telefonica-earns-979-million-euros-june-29-confirms-financial-targets-2024/

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Qualcomm Reports Strong Q3, Highlights Diversification and AI

Qualcomm reported robust financial results for the third quarter of fiscal 2024, with non-GAAP revenues of $9.4 billion and earnings per share of $2.33, surpassing the midpoint of the company’s guidance range. The earnings call, held on July 31, 2024, emphasized Qualcomm’s successful diversification strategy and significant strides in automotive and AI sectors.

Key Financial Highlights:

• Revenue: $9.4 billion, non-GAAP, up 2% sequentially.

• Earnings Per Share (EPS): $2.33 non-GAAP.

• Chipset Business Revenue: $8.1 billion, driven by growth in automotive and IoT sectors.

• Licensing Business Revenue: $1.3 billion.

Strategic Focus and Diversification Efforts:

CEO Cristiano Amon outlined Qualcomm’s ongoing diversification efforts beyond its traditional handset business. The company reported strong growth in its automotive and IoT segments, attributing this success to strategic design wins and the expanding adoption of Snapdragon platforms.

• Automotive Sector: Qualcomm secured over 10 new design wins with global automakers, expanding the presence of its Snapdragon Digital Chassis across next-generation digital cockpit, connectivity, and ADAS/autonomy solutions.

• IoT Sector: The company’s IoT revenues increased by 9% sequentially, reaching $1.4 billion. This growth reflects a gradual recovery in the industry environment and Qualcomm’s leadership in industrial IoT applications.

Q3 Results by Business Unit:

• Client Computing Group (CCG): $7.4 billion, up 9% year-over-year, driven by premium Android handsets and Chinese OEM growth.

• Data Center and AI (DCAI): $3.0 billion, down 3% year-over-year, reflecting ongoing challenges but steady performance.

• Network and Edge (NEX): $1.3 billion, down 1% year-over-year.

• Automotive Revenues: Achieved a record $811 million, up 34% sequentially.

• Licensing Business (QTL): $1.3 billion in revenue, with an EBT margin of 70%.

Future Outlook:

Looking ahead to the fourth quarter of fiscal 2024, Qualcomm provided optimistic guidance:

• Revenue Forecast: $9.5 billion to $10.3 billion.

• Non-GAAP EPS: $2.45 to $2.65.

• QTL Revenues: Estimated between $1.35 billion and $1.55 billion.

• QCT Revenues: Expected to be between $8.1 billion and $8.7 billion, with a focus on IoT and automotive growth.

Key Points from the Earnings Call:

• Strong Q3 Performance: Revenue of $9.4 billion, up 2% sequentially.

• EPS: Non-GAAP EPS of $2.33.

• Q4 Revenue Forecast: $9.5 billion to $10.3 billion.

• Q4 EPS Forecast: Non-GAAP EPS of $2.45 to $2.65.

• Automotive Design Wins: More than 10 new design wins with global automakers.

• AI and PC Growth: Positive momentum in AI-driven devices and the successful launch of Copilot+ PCs.

• Industrial IoT Collaboration: New partnership with Aramco for industrial and enterprise use cases.

• Licensing Agreement: Long-term agreement signed with Honor, a leading Chinese smartphone OEM.

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Amazon’s Q2: AWS Shines with Robust Growth

Amazon.com reported Q2 net sales of $148.0 billion, marking a 10% increase compared to $134.4 billion in the second quarter of 2023. This growth includes a $1.0 billion unfavorable impact from year-over-year changes in foreign exchange rates, which translates to an 11% increase in net sales excluding these changes.

A significant highlight from the report is the performance of Amazon Web Services (AWS), which continues to demonstrate strong growth and strategic importance.

• AWS Sales Growth: AWS reported a 19% year-over-year increase in sales, reaching $26.3 billion.
• Operating Income Surge: AWS operating income rose dramatically to $9.3 billion from $5.4 billion in the same quarter last year, underscoring its profitability.

Key Developments in AWS:

• Generative AI Capabilities: AWS expanded its AI offerings, including services like SageMaker for model builders, Bedrock for leveraging frontier models, Trainium for cost-efficient training and inference, and Q, a GenAI assistant for coding and software development.
• New Product Launches: Introduced AWS Graviton4-based compute instances, which provide up to 30% better price-performance than the previous Graviton3 instances.
• Strategic Partnerships: AWS secured new agreements with prominent companies, including Commonwealth Bank of Australia, Databricks, Discover Financial Services, Eli Lilly and Company, Experian, GE HealthCare, NetApp, Scopely, ServiceNow, Shutterfly, and AI startups like Perplexity, H Company, and Observea.
• Global Expansion: Announced a strategic AUD $2 billion partnership with the Australian Government to provide a “Top Secret” AWS Cloud, enhancing the nation’s defense and intelligence capabilities.
• Autonomous Vehicle Testing: Expanded the deployment of the self-driving robotaxi Zoox to public roads in Austin and Miami.

Financial Outlook:

• Q3 Revenue Guidance: Amazon expects net sales for the third quarter of 2024 to be between $154.0 billion and $158.5 billion, representing growth of 8% to 11% compared to the third quarter of 2023.
• Operating Income Guidance: Anticipated operating income for Q3 2024 is expected to be between $11.5 billion and $15.0 billion.

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth,” said Andy Jassy, Amazon President & CEO. “As companies modernize their infrastructure and move to the cloud, while also leveraging new Generative AI opportunities, AWS remains customers’ top choice.”

Key Financial Metrics for Q2 2024:

• Total Net Sales: $148.0 billion, up 10% year-over-year.
• Operating Income: Increased to $14.7 billion from $7.7 billion in Q2 2023.
• Net Income: Rose to $13.5 billion, or $1.26 per diluted share, compared to $6.7 billion, or $0.65 per diluted share, in Q2 2023.
• Operating Cash Flow: Increased 75% to $108.0 billion for the trailing twelve months.
• Free Cash Flow: Increased to $53.0 billion for the trailing twelve months.

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European Commission clears HPE-Juniper deal without conditions

The European Commission approved unconditionally the proposed acquisition of Juniper Networks  by Hewlett Packard Enterprise Company (HPE). The Commission concluded that the transaction would raise no competition concerns in the European Economic Area (‘EEA').

The Commission examined the transaction’s impact on the following markets: (i) the global market for wireless local area network (WLAN) equipment; (ii) the global market for wireless access points (WAPs); (iii) the EEA-wide market for Ethernet campus switches; and (iv) the global market for data center switches.

Following its market investigation, the Commission concluded that the transaction, as notified, would not significantly reduce competition in these markets. Specifically, regarding the horizontal overlaps between the companies’ activities in the WLAN equipment, WAPs, and Ethernet campus switches markets, the Commission determined that in the EEA:

• The merged entity's market position would remain moderate.

• The merged entity would continue to face competition from a wide range of competitors, including strong and established players on each of the markets.

• HPE and Juniper are not each other's closest competitors.

• Customers have a certain level of countervailing buyer power, allowing them to react in case of price increases of WLAN equipment and Ethernet campus switches.

Regarding the conglomerate links between Juniper’s switches and HPE’s activities in the global markets for high-performance computing (HPC) systems and mid-range servers, the Commission determined that in the EEA, the merged entity would not have the capability to engage in anticompetitive bundling or tying practices, because:

• The merged entity would not have a significant degree of market power either on the market for the supply of mid-range servers or on the market for the supply of HPC systems.

• Customers purchasing cycles for each of the respective products are different and therefore not conducive to allow any anticompetitive tying or bundling strategy by the merged entity.

• The merged entity would not obtain a significant advantage by offering its datacentre switches as a bundle with either HPE's servers or HPE's HPC systems.

• Competitors could replicate and challenge any tied or bundled products.

The Commission therefore concluded that the proposed merger would not raise competition concerns on any of the markets examined in the EEA or on any substantial part of it. It therefore cleared the transaction unconditionally.

https://ec.europa.eu/commission/presscorner/detail/en/ip_24_4101

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Cloudflare Achieves 30% YOY Growth in Q2, Boosting Annualized Revenue to $1.6B

Cloudflare reported strong financial results for its second quarter ending June 30, 2024. The company achieved an annualized revenue milestone of $1.6 billion, marking a 30% year-over-year increase. CEO Matthew Prince highlighted the company’s focus on execution, resulting in significant improvements in sales productivity and reinforcing Cloudflare’s essential role in helping customers modernize and secure their businesses.

• Revenue: $401.0 million, up 30% year-over-year.
• 
  Gross Profit: GAAP gross profit of $312.0 million (77.8% margin); Non-GAAP gross profit of $316.6 million (79.0% margin).
• Operating Income (Loss): GAAP loss of $34.7 million (8.7% of revenue); Non-GAAP income of $57.0 million (14.2% of revenue).
• Net Income (Loss): GAAP net loss of $15.1 million; Non-GAAP net income of $69.5 million.
• Cash Flow: Net operating cash flow of $74.8 million; Free cash flow of $38.3 million (10% of revenue).
• Cash Position: $1,757.4 million in cash, cash equivalents, and available-for-sale securities.

“We had a strong second quarter, crossing $1.6 billion in annualized revenue and growing 30% year-over-year. The world is still complicated, but our team remained focused on execution and delivered terrific results, including a double-digit year-over-year improvement in sales productivity,” said Matthew Prince, co-founder & CEO of Cloudflare. “I’m proud of how Cloudflare rises to the occasion to help our customers solve some of the hardest problems they face when modernizing, transforming, and securing their businesses—checking off even more value with the promise of our connectivity cloud and reinforcing Cloudflare’s position on ‘must-have’ lists.”

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Lumen Confirms Fiber Supply Deal With Corning

 Lumen Technologies confirmed a significant supply agreement with Corninfor next-generation optical cable, aiming to more than double its U.S. intercity fiber miles to support the growing demands of AI workloads and high-bandwidth applications. This deal secures 10% of Corning’s global fiber capacity for the next two years, marking Lumen’s largest cable purchase to date. The partnership will support major data center operators, including Microsoft, by enhancing Lumen’s extensive ultra-low-loss intercity fiber network, which connects over 50 major cities across North America. Lumen is also creating a digital platform on its physical network to offer cloud-like consumption of network services through its Private Connectivity Fabric.

Key Points:

• Secures 10% of Corning’s global fiber capacity for the next two years.

• Aims to double Lumen’s U.S. intercity fiber miles.

• Supports AI workloads and high-bandwidth applications.

• Enhances network infrastructure for major data center operators, including Microsoft.

• Lumen’s network connects over 50 major cities in North America.

• Lumen is developing a digital platform for cloud-like network service consumption.

“As generative AI increases bandwidth requirements between data centers, we’re pleased to reach an agreement with Lumen Technologies to provide our latest optical fiber and cable innovations to facilitate Lumen’s build of a new network to interconnect AI-enabled data centers,” said Wendell P. Weeks, chairman and CEO of Corning Incorporated.

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