Intel disappointed investors. For corporate customers, it’s still good enough

Following one of Intel’s worst quarterly earnings, corporate technology chiefs are left questioning the long-term future of the chip maker, which has struggled to execute on a promised turnaround. But they aren’t letting go of its PCs and servers.

On Thursday, Intel reported a loss of $1.6 billion for the second quarter, compared with a $1.5 billion profit a year earlier, and projected revenue 10% below Wall Street’s consensus and gross margins 25% below expectations, according to FactSet data.

The company also plans to lay off about 15,000 people, most by the end of this year, and pause dividend payments in a cost-saving drive three years into Chief Executive Pat Gelsinger’s turnaround effort.

For chief information officers, the results are the latest sign Intel has struggled the most of the other tech giants—Cisco, Microsoft and Dell—that dominated the dot-com era. And without a clear foothold in the all-important artificial-intelligence chip market led by Nvidia, Intel may not be a company to bet on in the future.

“Intel has consistently missed some key technology waves,” said Vish Narendra, CIO of Atlanta-based paper packing company Graphic Packaging International. “With the emergence of AI, they ceded more ground to AMD, Nvidia.”

A spokesperson for Intel said the company is “nearing completion of a historic pace of design and process technology innovation that is driving strong innovation across our portfolio and enabling new solutions for customers.”

“Intel is leading the creation of the AI PC category, and we are coming to market with an AI accelerator that will be attractive to enterprises based on an open ecosystem and compelling [total cost of ownership],” the spokesperson said. “Launching in the third quarter, Intel Gaudi 3 will take our accelerator performance to the next level—at just two-thirds the cost of competitive offerings.”

Intel manufactures chips for personal computers and servers used both by large cloud providers and enterprises in industries such as finance and insurance. In the past few years, the company lost about one-third of its cloud server business and about 10% of its enterprise server business to rival AMD, while remaining strong in PC sales, said Citi analyst Christopher Danely.

Analysts attribute the loss of share to how competitors outpaced Intel on chip performance because of a series of manufacturing stumbles. While Intel, which makes its own chips, was stuck figuring out manufacturing challenges, AMD, whose chips are manufactured abroad by TSMC, progressed to better performing generations, Danely said. However, Intel is on track to catch up next year, he added.

Meanwhile, corporations are still buying from Intel, which continues to dominate market share for non-AI computing workloads on servers. Second-quarter sales fell 1% from the same period a year earlier.

Intel has an advantage over rivals because it owns its chip fabrication plants, Narendra said. “They have a chance to recover some ground,” he added, “but that’s going to take some years.”

‘The same old’

Enterprise software provider Zapata AI said it buys laptops and servers with Intel chips. Chief Executive Christopher Savoie said he hasn’t seen enough of a difference between Intel’s offerings and those of rivals to warrant switching.

Savoie said most enterprise and consumer purchasers aren’t concerned about the exact performance level of the chip in the device they’re buying, because generation-to-generation improvements don’t always result in a noticeable difference. Cost is usually the bigger factor, he said.

Danely said that despite Intel’s chips being outpaced from a performance perspective, they still have strong security and stability, making them appealing for the enterprise. Plus, changing suppliers isn’t always an easy or cheap option.

It’s difficult to change out Intel as a supplier, according to Suvajit Basu, CIO of Jersey City, N.J.-based Goya Foods, which uses PCs with Intel chips for its primary desktops and laptops.

Citi’s Danely said, that “On the enterprise side, there’s almost this inertia there. There’s this sort of fear of switching over to AMD because Intel was so successful for four or five decades. That business moves very slowly.”

PC sales are a bright spot for Intel. They are getting a boost from a new crop of devices advertised as AI-ready. Revenue in the division housing PC chips rose 9% in the latest quarter from the same period a year earlier to $7.4 billion.

It remains to be seen whether Intel’s relative stability in some of its core markets will be enough to save a company that missed wave after wave of technology innovations, from the growth of mobile devices to processor advancements and, now, the AI boom.

Basu said he hasn’t seen any big innovations or advancements from Intel as the company “has become the same old.”

Whether Intel can execute on hugely expensive plans to build a U.S.-based chip foundry is another question. Danely said analysts are skeptical.

Yet Intel’s brand is still recognizable and trusted, so for both consumer and enterprise PCs and the server business, at least in the short term, Danely said, “Intel still works.”

Write to Belle Lin at belle.lin@wsj.com and Isabelle Bousquette at isabelle.bousquette@wsj.com