Intel (INTC  ) declined by 6% following its second-quarter earnings report. This was despite beating expectations on the top and bottom line as investors were more focused on the company's weak guidance and lower margins. Overall, this continues a difficult and disappointing stretch for Intel which has lost its place as the leading and premier chip company.

Inside the Numbers

In Q2, Intel generated $1.28 in earnings per share which was a 12% increase from last year's Q2 and topped analysts' consensus expectations of $1.06 per share. Revenue also beat at $18.5 billion vs $17.8 billion expected.

It also raised its full-year revenue guidance by $1 billion to $73.5 billion and lifted EPS estimates to $4.80. This is largely due to the company expecting that PC sales will continue to be strong into next year. Much of the company's beat in Q2 was driven by stronger than expected desktop and laptop sales as this segment grew by 33% compared to last year.

However, Intel shares fell lower as it reduced its margin outlook for the next quarter to 55% from 59.2%. The company attributed this to supply constraints, increased costs to building chips with its new process technology, and investments its making to improve manufacturing and building new facilities. Investors have been closely paying attention to margins to see if there is any potential impact from inflationary pressures or the supply chain bottlenecks.

In terms of its segments, Client Computing Group, reported $10.1 billion in revenue, a 6% gain. Surprisingly, the average price of a PC chip declined. This earnings report marked CEO Pat Gelsinger's second earnings report as he attempts to turn around the company following its fall from grace. He expects the chip shortage to get worse into the second half of the year but start improving afterward.

Data Centers reported $6.5 billion in sales, a 9% decline. This is primarily a reflection that Intel's data center chips for servers has fallen behind its competitors in terms of offering the best technology. This is only likely to get worse in the coming years based on current trends.

Stock Price Outlook

Intel is a classic value trap so investors shouldn't be fooled by its P/E of 12 and dividend yield of 2.5%. Consumers and corporate managers still are reflexively buying Intel chips because of its dominance and quality over the past decades. However, this is slowly changing as evidenced by the recent quarter. If this dynamic doesn't change, then Intel will likely have to lower prices even more to maintain demand for its chips. Essentially, it will have to do what AMD (AMD  ) was doing for the past couple of decades to stay in business when its chip technology lagged Intel.

Buying the stock is a vote of confidence in the management team's turnaround efforts. However, these efforts haven't been smooth either as Intel recently delayed the release of its next-generation architecture for servers. Given these factors, investors should avoid Intel.