Intel surges 12% as guidance points to a turnaround
2min read Intel's Q3 earnings report was a mixed bag with significant accounting charges but better-than-expected guidance for Q4, which led to a 12% after-hours surge in its stock price. Intel posted a revenue of $13.3 billion, which beat the consensus estimate of $13.02 billion but represented a 6.2% year-over-year decline. Adjusted EPS showed a loss of $0.46 per share, sharply missing the analyst estimate of a $0.02 loss, largely due to $15.9 billion in non-cash charges, including inventory write-downs and impairment charges related to the Intel 7 production line.
Intel's Q4 guidance was a highlight of the report, providing a revenue range of $13.3 to $14.3 billion, above the consensus estimate of $13.66 billion, and projecting adjusted EPS of $0.12, beating the expected $0.08. CEO Pat Gelsinger emphasized the company’s commitment to navigating economic challenges and reshaping its strategy while continuing to expand its product portfolio, with a focus on x86 chips and the 18A manufacturing process.
The foundry business, critical to Intel’s growth strategy, recorded $4.4 billion in sales, though it missed the expected $4.44 billion. The foundry segment saw a $5.8 billion operating loss, emphasizing the financial hurdles Intel faces in ramping up this new line of business. Intel secured two undisclosed foundry customers for its upcoming 18A chip manufacturing process, a step forward in attracting external clients, while its future Panther Lake processors are set to be produced in-house.
AI has been a focal point for Intel, with its Gaudi AI-accelerators drawing considerable customer interest. However, Intel revised its AI revenue forecast, falling short of the $500 million goal initially projected for 2024 due to slower-than-expected adoption rates. Despite this setback, Intel sees significant potential in the AI market, and its partnership with Amazon Web Services, which will use Intel's foundry for AI networking chips, is an encouraging development.
Intel's financial restructuring has been costly, with headcount reductions totaling 16,500 employees—up from an initial 15,000 target—and charges of $2.8 billion in Q3 from severance and restructuring costs. These moves align with Gelsinger’s plan to reduce annual costs by $10 billion by 2025 as Intel seeks to streamline operations and enhance cost efficiencies.
Progress on Intel’s U.S. manufacturing expansion, essential to its turnaround plan, has been slow due to delayed CHIPS Act funding. The company has committed $30 billion in capital investments in the U.S., and Gelsinger expressed frustration at the lack of the anticipated $8.5 billion in government support, stressing the importance of expediting the disbursement process for Intel’s manufacturing ambitions.
Client Computing, Intel's largest segment, posted $7.3 billion in sales, missing the $7.46 billion consensus as Intel grappled with a weaker PC demand landscape. Data Center & AI revenue came in at $3.35 billion, slightly ahead of the $3.15 billion forecast, benefiting from a strategic shift in data center products, but competition in AI remains intense.
Investors remain focused on the future of Intel’s foundry and manufacturing divisions, with ongoing debate about whether Intel should fully split its chip design and manufacturing arms. Gelsinger, however, reaffirmed Intel's "distinct but better together" philosophy, underscoring his intention to retain an integrated business model while exploring funding alternatives.
Overall, while Intel’s restructuring and AI growth hurdles present challenges, improved Q4 guidance, new foundry clients, and steady progress in its cost-cutting initiatives suggest a long-term strategy focused on profitability and innovation. However, sustained stock gains will likely depend on Intel's execution in the foundry space and its ability to capitalize on AI and other high-growth segments.
