Intel reported a net loss of $1.6 billion in the second quarter, a more than $3 billion decrease from the same quarter last year. The company’s adjusted gross margin was 38.7%.
This is down from last year’s quarter and well below its long-term target of 60%. A significant factor contributing to Intel’s declining profit is its push to lead the artificial intelligence (AI) PC market. Intel launched its Meteor Lake laptop chips late last year.
These were the first of Intel’s PC central processing units (CPUs) to feature dedicated AI capabilities. However, they lag behind newer competitors in performance. Despite this, Meteor Lake marks the beginning of Intel’s efforts to gain a foothold in the AI PC market.
The company expects AI PCs to make up more than 50% of the market by 2026. This is driven by consumer demand for advanced AI features. Intel has shipped more than 15 million Meteor Lake chips.
But this has come at a significant cost. The company’s decision to accelerate the production of Meteor Lake and relocate wafer production from Oregon to Ireland has increased expenses. The Ireland fab is expected to become more efficient as production scales up.
However, this currently adds to costs. According to analyst Patrick Moorhead, Intel has been running “hot lots” of Meteor Lake. This means prioritizing these batches to speed up production.
However, this, in turn, makes the overall foundry less efficient. Meteor Lake is Intel’s first tile-based PC chip and the first to be partially manufactured on its new Intel 4 process.
Intel’s financial challenges with Meteor Lake
The initial ramp-up of Meteor Lake is significantly impacting Intel’s finances. While Meteor Lake’s profitability is expected to improve as the Ireland fab scales up, this improvement will be offset by the introduction of Lunar Lake. Set to launch in September, Lunar Lake boasts substantial improvements over Meteor Lake in AI processing power, graphics performance, and battery life.
However, Intel outsourced its manufacturing almost entirely to Taiwan Semiconductor Manufacturing Company (TSMC). This is costly. Intel CFO David Zinsner noted the impact of cost inflation due to outsourcing.
This will affect the company’s margins as Lunar Lake ramps up. Additionally, Lunar Lake includes memory directly in the package to maximize efficiency, which further erodes margins.
“So, we’re going to have to buy that at a price and turn around essentially and include that in our price at 0% margin. So, that puts some negative pressure on the margins,” Zinsner said during the earnings call. Intel’s margin issues in the PC business are expected to improve with Panther Lake, the successor to Lunar Lake.
It is scheduled for a 2025 launch. Panther Lake will utilize the upcoming Intel 18A process. By bringing manufacturing back in-house, Intel anticipates a much better cost structure.
Panther Lake will begin ramping up in 2026 along with the Intel 18A process. “I think, you know, ’26 should be a good year for us in terms of gross margins,” Zinsner added. Intel is working hard to compete with AMD and Qualcomm in the AI PC market.
It’s taking on higher costs to expedite Meteor Lake shipments. It is also dealing with the financial impact of outsourcing Lunar Lake. However, the situation is expected to improve from 2026 onward as Intel’s manufacturing investments start to yield benefits.
