The semiconductor giant also warns that a slowdown in the PC market will continue ‘at least through the first half of next year’ due to the global memory shortage hurting demand.
Intel said Thursday that its data center business hit a 15-year record for revenue growth in a move that demonstrated improved execution and “meaningful progress expanding supply.”
However, the 78 percent year-over-year revenue growth for Intel’s Data Center and AI business in the third quarter was not enough to impress investors, which caused the chipmaker’s stock price to sink by 21 percent in after-hours trading.
“Despite near-term headwinds across the PC industry, demand for our CPUs remains robust, reinforcing our confidence in the long-term growth opportunities for our business,” Intel CEO Lip-Bu Tan said in a statement.
Intel’s third-quarter revenue was $16.5 billion, up 21 percent year over year and roughly in line with the average estimate of Wall Street analysts. Its earnings per share for the period, which ended in late September, were 52 cents, 18 cents above the average estimate.
The chipmaker’s forecast for fourth-quarter revenue, however, came in at a range of $15 billion to $16 billion. Wall Street analysts were expecting, on average, revenue to hit $15.61 billion, creating the potential for Intel to fall short of that. The company’s guidance also said that earnings per share could come in at 25 cents, 19 cents below the average estimate.
Tan said the Santa Clara, Calif.-based company’s “immediate priority is to unlock additional supply to meet extraordinary demand” for its Xeon server CPU family “while strengthening our product portfolio and roadmap.”
“We are moving with urgency and focus to capitalize on these opportunities to deliver sustainable growth and long-term shareholder value,” he added.
Intel Partner Hopes To See Focus To Return To Channel
Alexey Stolyar, CTO of Northbrook, Ill.-based Intel systems integration partner International Computer Concepts, told CRN that he considers the Wall Street miss a temporary setback for Intel as it continues to chase the “big deals” with major customers.
This, he added, is not unique to the chipmaker as he’s seeing this dynamic happen with AMD and Nvidia too, but it’s nevertheless resulting in the channel “getting less and less attention.”
“The market today is a little bit more different, and channel isn’t the same as it was [previously] seen,” Stolyar said.
However, the solution provider executive said he expects this dynamic to change as demand grows for shifting AI workloads to on-prem data centers and edge environments.
“It’s going to change a lot of things, and the channel is going to be much needed there,” Stolyar said. “Everyone right now is [focused on] big foundation [models], [and] big AI, all of that, but at some point it’s going to come back on-prem.”
Intel’s Third-Quarter Financial Results
With Intel’s Data Center and AI business experiencing the fastest revenue growth it’s seen in 15 years, sales for the third quarter came in at $7.3 billion.
The chipmaker cited strong demand across hyperscalers, neocloud providers and enterprise customers, but it also said purpose-built silicon revenue, representing Intel’s custom ASIC business, more than doubled year over year.
Intel said agentic AI workloads, which are creating greater demand for server CPUs, are “driving increased customer interest” across its product road map.
The company’s PC business, on the other hand, took a hit, with revenue for the Client Computing and Physical AI Group declining by 5 percent year over year to 5$8.1 billion.
The biggest factor that hurt demand is the ongoing global memory shortage, which is largely being driven by the breakneck growth of large-scale data centers for AI applications.
Intel CFO David Zinsner said the company expects the PC slowdown to “continue at least through the first half of next year.”
However, he added, the chipmaker remains “optimistic about the opportunities across our broader portfolio, and we will continue making disciplined investments in capacity and working capital to increase supply and support future growth.”
Intel’s contract chip manufacturing business, Intel Foundry, reported a 58 percent year-over-year increase in revenue to $6.7 billion. However, the company reported intersegment eliminations of $6.3 billion, reflecting transactions between Intel Foundry and the company’s chip design business units that reserve manufacturing capacity.
The semiconductor giant did not announce any major customers for Intel Foundry, which Tan has said is necessary to continue its traditional strategy of developing advanced chip manufacturing technologies.
However, the CEO said on Intel’s third-quarter earnings call that the company is “engaged with a couple of highly strategic customers,” adding that he’s “increasingly confident” that its Intel 18A-P node will be attractive for external customers.
“As is standard practice in the foundry business, I have consistently maintained that we will not disclose customer details,” he said. “That being said, I remain highly encouraged by the progress we are making with multiple potential customers on [the Intel 14A node].”
