Intel Q3 Beats Expectations, but Q4 Guidance Falls Far Short

What happened

The results cover the quarter ended Sept 26 and were released after the close on Oct 29. Intel said quarterly revenue, gross margin and earnings per share all exceeded prior guidance, with data center revenue growth the strongest in 15 years; CEO Lip-Bu Tan set the immediate priority as expanding supply of the Xeon family to meet server CPU demand.

Segment results diverged: Data Center and AI revenue was $7.318 billion, up 78% year over year, with operating income of $3.039 billion; Client Computing and Physical AI revenue was $8.097 billion, down 5%, which the company attributed to industry-wide memory shortages and tighter IT budgets; Foundry revenue was $6.7 billion, up 58%, with an operating loss of $1.853 billion. Group operating cash flow for the quarter was $5.1 billion, and adjusted free cash flow was $1.639 billion.

On guidance, Intel expects fourth-quarter revenue of $15 billion to $16 billion, GAAP earnings per share of $0.10, adjusted earnings per share of $0.25, and an adjusted gross margin of 38.0%; the prior LSEG consensus was revenue of about $17.07 billion and adjusted earnings per share of $0.43. CFO David Zinsner said the PC slowdown would continue at least through the first half of next year; a temporary shutdown at a fab in Israel after an October incident is expected to affect fourth-quarter revenue by about $300 million. Intel shares fell about 23% in after-hours trading following the release.

Key facts

1. Revenue and profit: revenue of $16.513 billion, up 21% year over year; GAAP earnings per share of $0.60, down 33%; adjusted earnings per share of $0.52, above $0.23 a year earlier.
2. Gross margin: GAAP gross margin of 43.0%, above 38.2% a year earlier; adjusted gross margin of 44.1%, above 40.0% a year earlier.
3. Data Center and AI: revenue of $7.318 billion, up 78% year over year, with operating income of $3.039 billion, which the company called its strongest growth in 15 years.
4. Client Computing and Physical AI: revenue of $8.097 billion, down 5% year over year, with memory shortages and tighter IT budgets among the causes cited.
5. Foundry: revenue of $6.7 billion, up 58% year over year, with an operating loss of $1.853 billion.
6. Fourth-quarter guidance and drags: revenue of $15 billion to $16 billion, GAAP earnings per share of $0.10, adjusted earnings per share of $0.25, adjusted gross margin of 38.0%; the Israel fab shutdown is expected to affect fourth-quarter revenue by about $300 million; the PC slowdown is expected to last at least through the first half of 2027.