To The Moon

Intel Earnings Review: Foundry Makes Headway, Data Center Profits Surge

Semiconductor giant $Intel(INTC)$   its stock jump nearly 8% in after-hours trading following its Q3 earnings release. Market focus was intense as this marks Intel's first report card since securing strategic investments from SoftBank, $NVIDIA(NVDA)$   , and the U.S. government. We dive into the results.

Q3 Key Financial Highlights

~Revenue: $13.65 billion, up 3% YoY and 6% QoQ, beating the consensus estimate of $13.14 billion and the company's guidance midpoint of $13.1 billion.

~GAAP Gross Margin: 38.2%, up 23.2 percentage points YoY and 10.7 points QoQ, above the consensus estimate of 35.6%.

~Non-GAAP Gross Margin: 40%, up 22 percentage points YoY and 10.3 points QoQ.

~GAAP Net Income: $4.06 billion, ending six consecutive quarters of losses and soaring past the consensus estimate of a $1.0 billion net loss. This includes a $3.77 billion net contribution from the Altera divestiture and U.S. government-held shares.

~Non-GAAP Net Income: $1.02 billion, swinging to a profit on both a YoY and QoQ basis, and handily beating the consensus estimate of $33.83 million.

Q3 Revenue Breakdown by Platform

~Client Computing Group (CCG): Revenue of $8.54 billion (up 5% YoY, up 8% QoQ). This remains Intel's largest business, accounting for 63% of total revenue. Operating income was $2.69 billion (down 8% YoY), with an operating margin of 31.6% (down 4.4 points YoY, but up 5.5 points QoQ).

~Intel Foundry: Revenue of $4.24 billion (down 2% YoY, down 4% QoQ), accounting for 31% of total revenue as the second-largest business. The segment posted an operating loss of $2.32 billion, though the loss narrowed on both a YoY and QoQ basis. The operating loss margin was 54.8%.

~Datacenter and AI (DCAI): Revenue of $4.12 billion (down 1% YoY, up 5% QoQ), accounting for 30% of revenue. Operating income was $960 million (up 153% YoY, up 52% QoQ). The operating margin hit 23.4%, marking the fifth consecutive quarter of improvement.

~Other Businesses: Mobileye revenue was $500 million, up 4% YoY but down slightly QoQ.

Three Things to Watch

Management's More Bullish Stance on Foundry

Last quarter, management stated that Intel 18A and 18AP were key nodes for the next three product generations, suggesting a reasonable return could be achieved from internal products alone, not ruling out the possibility of having no external customers. For Intel 14A (slated for 2028/2029), the company would wait for orders before committing capital. The market interpreted this as a major shift in the foundry strategy's priority.

However, Intel recently announced significant progress on its 18A process, with steadily improving yields, and claimed its first 18A-based notebook CPU, Panther Lake, will ship by the end of 2025 and be widely available in early 2026. Crucially, following the U.S. government's investment, which stipulated requirements on its foundry stake, Intel cannot relinquish control of its foundry business.

This quarter, management stated that 18A yields are improving and work on 18AP is advancing. The 18A family will be the foundation for at least the next three generations of Intel PC and server products. For 14A, management remains in active engagement with potential external customers and is "encouraged by the early feedback," with advanced packaging also progressing well.

Data Center Outperformance and Strong Server CPU Demand

Intel's Q3 data center operating margin recovered to a healthy 23.4%, its highest level since Q2 2022 and the fourth straight quarter of sequential improvement. Management emphasized that Intel server CPUs remain the "head nodes of choice" for AI, with strong demand for Granite Rapids.

Intel also announced it will establish an ASIC design services business to provide purpose-built silicon for a broad range of external customers, extending the reach of its core x86 IP. On the AI GPU front, management is positioning Intel as a "compute platform of choice for AI inference," planning an annual cadence of inference-optimized GPUs with enhanced memory and bandwidth to meet enterprise needs.

PC Margins Tick Up, Notebook Position Remains Solid

The PC business operating margin improved to 32% in Q3. Management stated Intel's position in the consumer and enterprise notebook segments remains strong, covering the full stack from entry-level to the mainstream Core family and high-performance Core Ultra.

However, Intel acknowledged it still trails $Advanced Micro Devices (AMD.US)$ in the high-end desktop market but is "making steady progress." Historically, the notebook CPU market accounts for 60-70% of the total PC market, which explains why AMD's revenue scale still lags Intel's despite its superior desktop market share. The market remains focused on the early 2026 launch of Panther Lake, the first 18A-based notebook CPU.

Guidance

~Intel guided Q4 revenue to a range of $12.8 billion to $13.8 billion. The midpoint of $13.3 billion represents a 7% YoY and 3% QoQ decline. This includes the deconsolidation of the Altera FPGA business, which contributed ~$400 million in revenue.

~Q4 margins are expected to be dragged down by the Intel 18A product ramp. GAAP gross margin is guided to 34.5% (down 4.7 points YoY, down 3.7 points QoQ). Non-GAAP gross margin is guided to 36.5% (down 5.6 points YoY, down 3.5 points QoQ).

~Q4 GAAP net loss is projected at $630 million. Non-GAAP net income is guided to $360 million, a 36% YoY and 65% QoQ decline.

Conclusion

In summary, this quarter's beat was driven by outperformance in Intel's PC and Data Center businesses, which led to better-than-expected gross margins and net income.

However, the market's focus remains fixed not on short-term results, but on whether the volume ramp of Intel 18A can prove the company's manufacturing prowess has returned. As the foundation for at least the next three generations of PC and server products, 18A is the single biggest determinant of Intel's long-term value.

From an industry perspective, Intel's near-term earnings beat is also likely to provide a sentiment boost for the broader semiconductor equipment sector.

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