Key Takeaways
- Intel shares fell 29% after it guided fourth-quarter revenue to $15.0 billion to $16.0 billion on a faster PC slump.
- Data center revenue grew 78% in the third quarter, but Intel can’t make enough server chips to offset weaker PC sales.
- Dell, HP, AMD and Micron fell too, as Intel blamed high memory prices for the PC slowdown.
- Intel’s case now rests on adding server supply in 2027.
Intel (INTC) sank 29% today after its outlook showed a company that, as Benchmark analyst Cody Acree put it on CNBC’s Closing Bell Overtime, is “still PC dependent.”
The warning hit PC makers Dell Technologies (DELL), down [12%], and HP (HPQ), off [10%]. Rival Advanced Micro Devices (AMD) fell [9%], and Micron Technology (MU), whose memory chips sit at the root of the slump, lost [6%].
Servers can’t carry it yet
Intel’s third quarter beat its own guidance, with data center revenue up 78% to $7.3 billion while PC chip revenue fell 5%. But it guided fourth-quarter revenue to $15.0 billion to $16.0 billion and its non-GAAP gross margin to 38%, from 44.1%. CFO David Zinsner sees “the PC slowdown continuing at least through the first half of next year.”
Intel can’t make enough Xeons to fill the gap. CEO Lip-Bu Tan blamed short supplies of packaging substrates, and an accident that shut Intel’s Israel factory will cost about $300 million of fourth-quarter revenue.
Total revenue sat between $12.7 billion and $14.3 billion for six quarters before breaking out in the quarter to June:
It reached $16.5 billion in the third quarter, and the guide’s midpoint gives back $1 billion of that.
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The squeeze spreads
Dell and HP pay those memory prices and pass them on in pricier PCs, which is eating into demand. Their next reports will show which gives first: margins or unit sales.
AMD shares the PC squeeze, but it’s also Intel’s main server rival, and JPMorgan estimates Intel’s share of server CPU revenue has fallen from 77% to 53% since late 2022. Every Xeon Intel can’t ship is a sale AMD can try to win.
Micron is selling the scarce memory: revenue hit a record $54.2 billion in its fiscal fourth quarter, ended Sept. 3, up from $11.3 billion a year earlier. Intel’s warning only confirms memory is still tight.
Still PC dependent, for now
Intel traded at 53x forward earnings at Thursday’s close, near its five-year average of 50x:
Today’s drop takes it to about 40x, more than double the 10x to 18x it held from 2014 to 2022. And management called 2027 an “investment year,” with no positive free cash flow.
My take: The server demand is real, but this price still pays for supply Intel hasn’t built. Of course, if Intel’s server capacity grows more than 50% in 2027, as New Street Research expects, PCs stop setting the quarter quickly.
So what is Intel stock actually worth?
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