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Intel (INTC) is plunging after a disappointing Q3 report. While it beat EPS expectations, revenue was roughly in line, increasing 20.9% yr/yr to $16.51 bln. Additionally, its Q4 guidance fell well below expectations as the ongoing memory crunch weighs on its PC business, while manufacturing disruptions and supply constraints limit its ability to meet strong data center demand. Intel expects Q4 adjusted EPS of $0.25, far below consensus, with revenue of $15.0-16.0 bln, also well below expectations.

• DCAI was the bright spot, but supply remains a major limitation. Revenue increased nearly 80% yr/yr and 17% sequentially to $7.3 bln, with strength across hyperscalers, enterprise customers, and neocloud providers. Purpose-built silicon revenue more than doubled yr/yr, while operating profit increased roughly $600 mln sequentially to $3.0 bln. However, Intel 3 capacity limitations, advanced packaging substrate shortages, and a recent shutdown at its Israel facility continue to restrict server output, with meaningful capacity relief not expected until 2H27.
• The PC business was considerably weaker. CCPG revenue declined 5% yr/yr and 9% sequentially to $8.1 bln, below management's expectations, as higher memory prices and limited IT budgets accelerated an inventory correction among PC manufacturers. Intel now expects industry PC unit TAM to decline approximately 12% in 2026 and another 10% in 2027. Management expects the inventory correction to persist into at least Q1, while memory shortages could weigh on underlying PC demand for an extended period.
• Foundry continued to make progress, with revenue increasing 16% sequentially to $6.7 bln and operating losses narrowing to $1.9 bln from $2.1 bln in Q2. Improving yields and production efficiency helped reduce Intel 18A manufacturing costs by approximately 40% since Q1. However, external foundry revenue remains limited, with much of its sequential growth tied to a non-recurring customer program.
• Profitability is expected to deteriorate sharply in Q4, with adjusted gross margin falling to 38% from 44.1% in Q3, reflecting weaker PC volumes, lower factory utilization, and a 200-bp impact from the Israel disruption. Intel also expects 2027 capital spending to increase significantly from $20 bln this year, with free cash flow likely turning negative.
• Looking ahead, Intel continues to see exceptionally strong server CPU demand, particularly from AI infrastructure and agentic workloads. However, its inability to fully meet that demand, coupled with a prolonged PC downturn and significant capital requirements, continues to complicate its turnaround despite improving manufacturing execution.

Briefing.com Analyst Insight

Overall, a disappointing report from Intel, particularly at a time when demand for its server CPUs remains exceptionally strong. There are certainly encouraging developments in its turnaround, particularly improving manufacturing yields and stronger data center profitability, but these improvements are not translating into the broader financial recovery investors had hoped for. The worsening PC market amid the memory crunch is adding further pressure, while supply constraints continue to limit its ability to fully capitalize on accelerating data center demand. Its advanced foundry capabilities also remain promising, although meaningful external customer commitments have yet to materialize. The magnitude of the weaker outlook is particularly concerning, with revenue, margins, and earnings all expected to decline sharply sequentially, while many of these pressures could persist well into 2027. While demand is strong, translating that opportunity into sustained profitable growth remains a challenge, particularly with capital spending set to increase significantly.