Intel’s share price sank by almost a quarter on Thursday after the company revealed a deep dip in sales of PC processors.
The rout began after the silicon-slinger posted Q3 results that included some nice numbers, such as a 21 percent year on year revenue jump to $16.5 billion, helped by 78 percent growth for datacenter and AI products, and gross margins of 43 percent. The revenue number was at the high end of Intel’s revenue guidance of $15.8-16.8 billion, and the gross margin beat its predictions by two points.
Outweighing those upsides was a decline in revenue for client computing and physical AI products, which saw incoming cash reach $8.1 billion but fall five percent year-over-year and nine percent decline from last quarter.
In prepared remarks [PDF] published to coincide with Intel’s earnings announcement, CEO Lip Bu Tan said “In recent weeks, our customers began signaling a PC slowdown based on memory prices and availability. Year-to-date system end-point prices have increased significantly placing additional pressure on already limited IT budgets.”
“The pace of the PC correction has accelerated over the last two months, as our OEM partners are aggressively managing inventory to match the softer sell through,” he added, before predicting that the market for PC chips will shrink by 12 percent next year and remain tough “until memory availability and prices begin to normalize.”
Which may not be for years, given Korean memory-maker SK Hynix this week predicted that memory shortages will persist until the year 2030. Intel’s biggest business is therefore in trouble.
AI and Xeons riding to a rocky rescue
Tan tried to give investors reasons to be cheerful, by saying Intel sees a “resurgence in demand for CPU” sparked by customers’ desire for computing systems that consume less energy.
“Increasingly, energy efficiency is becoming the most important metric for the AI infrastructure build-out,” he said.
That matters, Tan argued, because “While GPUs are great at ‘thinking tasks,’ deterministic CPUs are far more efficient at ‘finding’ tasks. While a GPU reasoning query can run as high as multiple watt-hours of energy, a single CPU-based query could cost only joules of energy.”
The CEO reasoned that lower energy consumption is important in the context of agentic AI – the idea that we will all soon run many autonomous agents to handle personal and professional scutwork.
“Applying even conservative estimates to the total number of digital agents, and agents serviced per CPU, it is easy to anticipate a massive dollar and unit TAM [total addressable market] for CPUs over the coming five years,” Tan said. “By our estimates, server CPU TAM, largely driven by agentic workloads, could increase as much as 5X from where it is today, from $40B to more than $200B over five years.”
But during its earnings call, Intel execs admitted it may struggle to cash in on that boom in the short and longer term as the company struggles to source key supplies like silicon wafers.
Asked if Intel can meet demand for server CPUs and if investors should therefore expect further growth in datacenter product sales early in Intel’s next financial year, chief financial officer Dave Zinsner declined to offer any guidance.
“There is going to be a strong driver of demand for CPUs,” he demurred. “We see that continuing all through next year. We are working on the supply side of the equation to make sure that we can meet what customers need. We will likely not fully meet what they require, but I think we are going to be in a more challenging situation in the first half of the year than we are in the second half.”
Intel is trying to shift production around its fleet of fabs so it can crank out as much silicon as possible and will even devote some PC chip production capacity to datacenter products. But overall, Chipzilla is clearly in a spot of bother.
CEO Lip Bu Tan said his plan to “rebuild” Intel will be “a multiyear journey” and insisted “We have made enormous strides in these 18 months, including a dramatic re-sizing of our workforce, eliminating middle management and bureaucracy, streamlining our executive ranks and establishing an almost entirely new leadership team.”
He pointed to strong progress on Intel’s manufacturing processes that will bring it closer to parity with TSMC, meaning its own products will become more potent while the company’s foundry business also becomes more attractive.
And he said that Intel has restored an “engineering-centric culture” that will help the company to improve.
But the CEO also admitted “I am disappointed that we were not able to meet strong customer demand in this quarter.”
“We face near term challenges, including manufacturing supply shortages, the unprecedented memory crunch, and the resulting softness in PC demand. But I remain confident in our path forward.”
Investors did not share that confidence. Intel’s shares started the day at $92.96 apiece. Immediately after the company announced its results, shares sank to $73. At the time of writing, after-hours trading has seen the price reach $70.87, a 23.7 percent slump. ®