Intel showed a decline in revenue, but pleased investors with its forecast for the current quarter

The prerequisites for Intel’s revenue decline in the third quarter were discussed by analysts long before the publication of the quarterly report, and the appearance of relevant documentation confirmed these concerns. However, the company managed to please investors with its revenue forecast for the current quarter, which caused the troubled chipmaker’s share price to rise by almost 7% after the close of trading.

Intel’s desire to “smooth out the rough edges” of its financial statements for the past quarter was evident even in the structure of the presentation itself, published following its results. In fact, even traditional infographic material, rather than the presentation itself, provided a more complete picture of the dynamics in all areas of activity. From it it became clear that Intel’s total revenue in the third quarter dropped by 6% year-on-year to $13.3 billion. This is slightly higher than the expected result, which formally can serve as a reason for cautious optimism among investors. From this point of view, Intel managed to exceed not only market expectations, but also its own.

Intel’s profit margin for the third quarter dropped by 27.8 percentage points to 18.0%, in this regard it was 20 percentage points below the company’s own expectations, but one must understand that such a drawdown is dictated by the need to write off expenses associated with the ongoing restructuring . Intel was unable to avoid losses for the quarter, and they amounted to $16.99 billion, which is $3.88 per share. A year ago, the company could boast of net income of $310 million and specific earnings of $0.07 per share. Intel’s operating losses reached $2.4 billion.

Since the nuances of the ongoing restructuring in terms of the impact on Intel’s financial statements deserve a separate publication, in the current material we will focus on the results of the company’s existing business areas. The product line as a whole reduced its revenue by 2% to $12.2 billion. In the client area separately, the decline in revenue reached 7% to $7.3 billion, falling short of analysts’ expectations ($7.46 billion). But the server direction was able to increase revenue year-on-year by 9% to $3.3 billion, exceeding market expectations ($3.1 billion).

The company’s chief financial officer, David Zinsner, was forced to say that the normalization of inventories on the customer side will continue in the first half of next year. In the client segment, the company’s revenue amounted to $7.3 billion with an operating profit of $2.7 billion and an operating profit margin of 37.1%. The latter figure did not look depressing compared to the previous quarters, so Intel found it necessary to compare the results of the third quarter with the four previous ones on the presentation slide.

In annual comparison, Intel’s revenue in the desktop segment fell by almost a quarter to $2.07 billion, but in the mobile segment it grew by 8.5%. By the end of 2025, the company still expects to ship components for more than 100 million PCs that support AI acceleration features. The announcement of Panther Lake processors is scheduled for the second half of next year. This will be Intel’s first consumer processor to feature Intel 18A technology.

In the server segment, revenue of $3.3 billion was coupled with operating profit of $300 million, and the operating profit margin did not rise above 10.4%. The NEX business unit, responsible for networking and telecommunications solutions, added 4% to $1.5 billion in revenue for the quarter. Operating profit rose to $300 million, and the operating profit margin jumped to 17.7%. This was facilitated by both a reduction in inventories and a revival in demand for components for 5G networks and solutions for edge computing with AI elements. More than 70% of server systems that specialize in accelerating artificial intelligence using GPUs, according to Intel executives, are equipped with Xeon central processors. Intel is going to join the edge computing business to the client direction, and the company’s software solutions will be distributed across existing hardware for the purpose of deeper mutual integration.

Demand for Gaudi’s own computing accelerators turned out to be lower than expected, and therefore the company is forced to admit that it will not achieve its previously set revenue goal of $500 million from their sales for the current year. The company even had to write off a batch of accelerators worth $300 million in the third quarter.

The reporting of the contract direction of Intel Foundry stands out. Revenue fell only 8% to $4.4 billion, but operating losses more than doubled sequentially to $5.8 billion, pushing the operating profit margin into negative territory at minus 134.3%. At the same time, the company continues to insist that the development of Intel 18A technology is on schedule, and the first products for its own needs and third-party clients using it will begin to be mass produced next year. At the same time, as management emphasizes, the share of third-party orders will begin to increase no earlier than 2026, and until then Intel Foundry will continue to primarily serve the company’s own needs. Having mastered five of those processes in four years by 2025, the company expects, after the transition to Intel 14A and further stages of lithography, to adhere to a more measured pace of development of new technological processes.

Regarding the Intel Foundry’s success in attracting external customers, the company’s management preferred to talk about an agreement with Amazon (AWS), which provides for the supply of this company with both Xeon 6 processors produced using Intel 3 technology on special order, and substrates for AI accelerators using Intel’s advanced technological process 18A. Intel’s management is aware that not all of those interested in the opportunity to produce their chips at the company’s facilities will eventually become its customers. In this context, Intel is careful to mention the presence of two more candidates for the Intel 18A process technology, as well as multiple orders for packaging chips using complex spatial methods. Intel is particularly proud of its $3 billion contract with the US Defense Department.

The Altera division, for which the management of parent company Intel expects to find investors, in the third quarter reduced revenue by 44% to $412 million. At the same time, by the end of the year it is planned to increase revenue from sales of Agilex series products three times. Overall, Altera’s revenue has been growing since the beginning of this year, albeit at a modest pace. At the end of the third quarter, the division reached breakeven, demonstrating an operating profit margin of 2.2%. Intel is focused on the idea of ​​selling a stake in Altera followed by an IPO. Investors should be found next year.

Mobileye managed to stabilize both its operating profit ($78 million) and operating profit margin (16.1%) in a sequential comparison. Revenue directly decreased year-on-year by 8% to $485 million.

For the current quarter, Intel expects revenue to range from $13.3 billion to $14.3 billion, with the midpoint of that range exceeding analysts’ estimates of $13.6 billion. That, coupled with CEO Patrick Gelsinger’s stated commitment to preserving Intel’s structural integrity, contributed to a 7% rise in the company’s stock price in after-hours trading.