Intel sinks on weak Q4 outlook

Intel shares fell about 20% in after-hours trading on Thursday after the company issued fourth-quarter guidance that came in well below analyst expectations, signaling a tougher period ahead. The chipmaker forecast Q4 revenue in a range of $15 billion to $16 billion and projected adjusted earnings per share of $0.25, both short of market estimates. The outlook pointed to a sequential decline in revenue and profitability from the just-completed quarter, unsettling investors despite solid recent operating performance.

At the midpoint of Intel’s Q4 revenue range, $15.5 billion, the forecast sits below the approximately $17.08 billion analysts expected and below the $16.5 billion just reported for the third quarter. Adjusted gross margin is expected to narrow to 38% in the fourth quarter from 44.1% in the third quarter, highlighting the profitability pressures Intel anticipates as it moves through year-end.

The sharp stock reaction came even though Intel delivered a stronger-than-expected third quarter. The company reported adjusted earnings of $0.52 per share, ahead of a 40-cent consensus, on revenue of $16.5 billion, slightly above expectations and up 21% from a year earlier. Adjusted gross margin widened to 44.1% from 40% a year ago, reflecting improved execution and expanding supply, according to management.

Intel generated $5.1 billion in operating cash flow during the quarter and ended the period with $54 billion in cash and short-term investments against $46.3 billion of debt. The company also completed a $23 billion equity offering during the quarter, bolstering its balance sheet as it invests in capacity and process technology.

The latest results highlighted contrasting trends inside Intel’s portfolio. Revenue from the Client Computing and Physical AI Group, which includes PC-related products, slipped 5% year over year to $8.1 billion, reflecting ongoing softness in the global PC market. By contrast, Data Center and AI segment revenue surged 78% to $7.3 billion, the fastest data-center growth in 15 years, with operating income in that unit rising to $3.04 billion.

The balance of the business has shifted as data center revenue has grown to about 90% of client revenue, up from 48% a year earlier, underscoring the increasing weight of server and AI demand in Intel’s overall mix.

Intel’s management linked part of the weaker outlook to persistent challenges in the PC market and supply dynamics. Chief Financial Officer David Zinsner said PC market weakness is likely to persist through at least the first half of next year. Finance chief David Zinsner also indicated that Intel will continue making disciplined investments in capacity and working capital to increase supply and support future growth.

Chief Executive Lip-Bu Tan said the third-quarter results showed improving execution, meaningful progress expanding supply and continued advancement of process technology. He added that despite near-term headwinds across the PC industry, demand for Intel’s CPUs remains robust, and that the company’s immediate priority is to unlock additional supply to meet extraordinary demand for its Xeon family. Management signaled ongoing efforts to ramp next-generation manufacturing, including progress on its forthcoming 14A chips and process design kits for customers.