What Intel (INTC) Said on Its Q3 Earnings Call

Key Points

• Intel beat Q3 guidance with $16.5 billion in revenue, a 44.1% non-GAAP gross margin and $0.52 in non-GAAP EPS, driven by strong server demand, improved manufacturing and disciplined spending.
• Data Center and AI revenue surged nearly 80% year over year to $7.3 billion, but supply constraints and a Fab 28 shutdown are expected to reduce Q4 revenue by about $300 million and pressure margins.
• The PC market is weakening sharply as high memory prices and limited availability trigger an inventory correction; Intel expects CCPG revenue to fall more than 20% sequentially in Q4 while continuing to invest heavily in its Intel 3, 18A and future 14A processes.

Intel NASDAQ: INTC reported third-quarter results that exceeded its guidance for revenue, gross margin and earnings per share, supported by strong demand for server CPUs and improved manufacturing output. Management said the gains were partly offset by a sharp deterioration in the PC market tied to higher memory prices, constrained memory availability and limited IT budgets.

Third-quarter revenue was $16.5 billion, while non-GAAP gross margin reached 44.1%, about 200 basis points above the company’s guidance. Non-GAAP earnings per share were $0.52, compared with guidance of $0.38. Chief Financial Officer Dave Zinsner said higher revenue, stronger margins and disciplined spending drove the upside. Operating cash flow was $5.91 billion.

Intel ended the quarter with about $54 billion in cash and short-term investments and $15 billion in borrowing capacity under extended revolvers. The company also completed a $23 billion equity offering in August, with related interest income contributing about $0.01 to third-quarter EPS, Zinsner said.

Data Center Growth Outpaces Client Weakness

Data Center and AI, or DCAI, revenue was $7.3 billion, up 17% sequentially and nearly 80% from a year earlier. The segment generated $3 billion in operating profit, or 42% of revenue. Intel said the growth was broad-based across hyperscale, enterprise and “Neo Cloud” customers, while purpose-built silicon revenue rose more than 50% sequentially and more than doubled year over year.

CEO Lip-Bu Tan said the demand environment became more balanced in the third quarter, with momentum in DCAI helping produce the segment’s strongest revenue growth in 15 years. However, he said demand for data-center products continues to exceed available supply.

Granite Rapids, Intel’s Intel 3-based server product family, has become the company’s largest server product family, according to Zinsner. Clearwater Forest, Intel’s first Intel 18A server product, is shipping for revenue, while Diamond Rapids is sampling and remains on track to ramp in 2027, Tan said.

Intel also announced an agreement with Oracle Cloud Infrastructure to deploy its latest-generation CPUs for Oracle’s AI infrastructure build-out. Tan said customers are seeking long-term agreements to secure CPU supply.

Management identified several constraints on server output, including advanced organic substrate shortages for EMIB packaging and continuing work to improve Intel 3 yields and cycle times. In addition, an accident at Intel’s Fab 28 facility in Israel led to an extended shutdown and will affect 10-nanometer server shipments.

Zinsner said Intel expects the Fab 28 incident to reduce fourth-quarter revenue by about $300 million and gross margin by roughly 200 basis points. The revenue impact could be similar in the first quarter, though most wafer write-offs are expected to occur in the fourth quarter.

PC Market Faces Inventory Correction

Client Computing Group, or CCPG, revenue was $8.1 billion, down 9% sequentially and below Intel’s expectations. The segment’s operating profit was $2.3 billion, or 28% of revenue, and was approximately flat sequentially, aided by lower inventory charges.

Tan said PC customers began signaling a slowdown as rising memory costs and reduced availability pushed system endpoint prices higher. OEM partners have been reducing inventory to align purchases with weaker sell-through, he said.

Zinsner said Intel expects the PC market’s unit total addressable market to decline about 12% in 2026, with second-half unit volumes down more than 20%. For 2027, Intel is planning for PC unit demand to decline roughly 10%, with the steepest year-over-year declines expected in the first half.

The CFO said the inventory correction is expected to weigh heavily on the fourth and first quarters and may extend somewhat into the second quarter. Intel does not expect memory availability and pricing to improve during 2027.

Despite the market conditions, Intel said its AI PC revenue rose 35% year over year in the third quarter. Wildcat Lake unit volume increased about 70% sequentially and the product is sold out, Zinsner said. Intel expects Nova Lake to address a gap in its high-end desktop portfolio and believes the product lineup could support market-share gains as the market stabilizes.

Foundry Progress and Increased Investment

Intel Foundry revenue totaled $6.7 billion, up 16% sequentially, while external foundry revenue was $411 million, including a non-recurring customer program. The foundry business reported a $1.9 billion operating loss, though that represented a $236 million sequential improvement.

Intel said Intel 3 costs have improved about 15% since the first quarter, while Intel 18A costs have declined about 40% over the same period. Zinsner said Intel 18A client CPUs have risen from less than 5% of client CPU revenue in the first quarter to nearly one-third currently.

Tan said Intel 18A yields improved at a double-digit rate during the quarter and that Intel 18A-P remains on track for launch across Intel’s internal product portfolio by year-end. He also said Intel released its 0.9 process design kit for Intel 14A to select customers in October and expects to release the 1.0 PDK in the first quarter of next year.

Intel expects to announce “a couple” of advanced-packaging customers over the next two quarters, Tan said, while declining to identify customers or provide further details on external foundry engagements.

Fourth-Quarter Outlook

For the fourth quarter, Intel forecast revenue of $15 billion to $16 billion. At the $15.5 billion midpoint, the company expects non-GAAP gross margin of 38%, a non-GAAP tax rate of 11% and non-GAAP EPS of $0.25.

• DCAI revenue is expected to rise by a mid-teens percentage sequentially.
• Purpose-built silicon is expected to grow faster than the DCAI segment overall.
• CCPG revenue is expected to decline more than 20% sequentially as customers reduce inventory.
• Fourth-quarter non-GAAP operating expenses are expected to be about $4.4 billion.

Intel maintained its expectation for $20 billion in gross capital expenditures for 2026 and said 2027 capital spending will increase substantially. Zinsner said the company expects 2027 to be an investment year and does not anticipate positive free cash flow as it ramps Intel 3 and 18A production and prepares Intel 14A for production in 2028.

“We have significant work ahead of us,” Zinsner said, but added that stronger server markets, improving manufacturing execution and the company’s product roadmap provide increasing confidence in Intel’s long-term earnings and cash-flow potential.

About Intel (NASDAQ:INTC)

Intel Corporation NASDAQ: INTC is a global semiconductor company that designs and manufactures computing and connectivity products. Its portfolio includes Intel Core processors for personal computers, Xeon processors for data centers and enterprise systems, and products for networking, edge computing, graphics, and artificial intelligence workloads.

Through Intel Foundry, the company also provides semiconductor manufacturing and technology-development services for external customers. Intel develops process technologies, advanced packaging, and other manufacturing capabilities intended to support its own products and third-party chip designs.

Founded in 1968 by Robert Noyce and Gordon Moore, Intel helped establish the modern microprocessor industry and has historically supplied processors for PCs, servers, and other computing systems.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.