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Intel (INTC +7%) springs higher today despite registering substantial net losses in Q3, falling well short of analyst expectations as margins plunge. The U.S.-based chip maker has had a rough year. As the AI race intensified, with Advanced Micro (AMD) and NVIDIA (NVDA) taking a commanding lead, INTC has struggled to make it far from the starting line. The gap has continuously widened as INTC struggles with a deteriorating PC landscape, ailing foundry growth, and skyrocketing costs.

Last quarter, massive changes were announced. INTC suspended its dividend and announced a cost reduction plan, including reducing its headcount by at least 15%. Since then, rumors have emerged, including Qualcomm (QCOM) expressing interest in acquiring INTC to the company divesting its foundry business. With so much swirling around INTC, it may not be surprising that the stock still trades in a relatively tight range despite today's pop.

• INTC's net loss of $0.46 per share in Q3, significantly below its $(0.03) prediction, stemmed primarily from a sizable impairment related to Intel 7 equipment, reflecting excess COVID-era spending that cannot migrate to more advanced nodes. For instance, INTC transitioned to EUV processing, an essential technology for manufacturing advanced chips, which boasts performance improvements over Intel 7.
• The net losses also branched from INTC's aggressive cost-reduction actions. During Q3, INTC completed most of its headcount reduction and is on track to its 15% target before year's end. Additionally, the company reduced its CapEx by over 20% relative to its plan at the start of the year. Also, INTC has begun simplifying and streamlining the components of its portfolio, including moving its edge business into its Client Computing Group (CCG) segment and refocusing its Network and Edge (NEX) portfolio on networking and telecommunications.
• INTC reiterated its forecasts driven by these actions. The company expects spending to be down by over $10.0 bln in 2025, resulting in net CapEx of $12-14 bln. INTC also still expects positive free cash flow in FY25. For Q4, the progress in cost reduction supported INTC's $0.12 adjusted EPS projection.

Still, plenty of work is needed to fully turn around INTC's struggling operations. The company's Data Center and AI (DCAI) segment must begin to make inroads competitively. During Q3, the segment delivered a 9% jump in revs yr/yr to $3.3 bln, far below the over 100% growth AMD posted. Meanwhile, Foundry revenue slid by 8% in Q3 while operating losses ballooned to $5.8 bln, primarily due to impairment charges. INTC anticipates losses to persist at around the same rate in Q4, excluding the impairment charge. Also, INTC's core CCG segment reversed course from last quarter, posting a 7% revenue decline to $7.3 bln, underpinning ongoing customer inventory adjustments.

It was an active quarter for INTC as it continues on an ambitious turnaround path. Costs are expected to decline, and technology improvements may bolster INTC's AI business. However, the road back to reasserting its dominance as a chip manufacturer remains filled with obstacles, especially as competitors continue to widen their lead.