3 Takeaways from Intel’s Q3 Earnings

Intel (INTC) has reported a return to profitability in its third quarter, breaking a streak of six consecutive quarterly losses. This marks a significant milestone for the chipmaker amidst ongoing efforts to regain market share and navigate a complex macroeconomic environment.

The earnings report, the first since the U.S. government acquired a 10% equity stake, revealed strong revenue driven by robust demand for its chips. Intel anticipates this upward trend to extend into 2026, fueled by emerging technologies like artificial intelligence and sustained PC market demand.

Specifically, client computing revenue, encompassing chips for PCs and laptops, demonstrated a healthy 5% year-over-year growth. This performance was attributed to a stabilizing PC market and the promising potential of artificial intelligence-enabled PCs.

CEO Lip-Bu Tan emphasized the long-term strategic importance of artificial intelligence, stating that it “is a strong foundation for sustainable long-term growth as we execute.” This suggests a strategic shift towards AI-centric solutions, leveraging Intel’s expertise in hardware to capitalize on the burgeoning AI market. The company’s move is significant amid competitors like Nvidia, AMD, and Qualcomm and is a signal of intent that Intel isn’t willing to sit on the sidelines. What’s more, the government’s financial backing may aid Intel in securing valuable research and design as the advances in AI will likely depend on governmental regulations.

While the overall results were positive, areas of concern remain, notably in the company’s foundry business, which continues to require substantial improvement to compete against pure-play foundries like TSMC. However, new business unit formations, aggressive acquisition strategies, and partnerships across global organizations may signal an increased market competitiveness that will translate to future growth.

Here are key takeaways from Intel’s Q3 report:

“We significantly improved our cash position and liquidity in Q3, a key focus for me since becoming CEO in March,” CEO Tan stated during the analyst call. This renewed focus on free cashflow is likely driven by increased capital and operating expenses to compete in a high-growth industry.

Intel bolstered its financial reserves through an $8.9 billion investment from the U.S. government in August. According to CFO David Zinser, these transactions, combined with the Altera sale, will position Intel with approximately $35 billion in cash on hand.

The U.S. government’s significant shareholding, resulting from the investment, underscores the strategic importance of Intel to national interests. Zinser addressed the relationship with the U.S. government, stating, “Like any shareholder, we have to keep in touch with them… We generally talk to them like Fidelity,” indicating a commitment to transparency and open communication.

Intel’s foundry business remains a key area of focus for improvement. While progress is being made, revenue declined 2% year-over-year, and the business is still actively seeking major customer wins.

The company currently operates two fabs running 18A nodes, which are specifically designed for AI and high-performance computing workloads. This strategic investment reflects Intel’s commitment to advanced manufacturing capabilities and a competitive edge in emerging technology sectors.

Regarding the latest chip technology, CEO Tan stated, “We are making steady progress on Intel 18A… We are on track to bring Panther Lake to market this year.” This announcement signals Intel’s ongoing efforts to enhance its product offerings and address the evolving needs of its customers.

Notably, CFO Zinser emphasized that the more advanced 14A nodes will not be deployed until the company has established “real firm demand.” This cautious approach reflects a disciplined capital allocation strategy, aligning production with market demand to ensure profitability and efficiency.

A notable aspect of Intel’s performance was the continued strength of its older chipmaking processes, or nodes. Zinser commented that this sustained demand was “probably the part that was more unexpected,” suggesting a positive surprise in the resilience of legacy technologies.

To meet central processing unit (CPU) demand, Intel utilized existing inventory, but Zinser anticipates supply constraints in the coming quarters, potentially extending through Q3. These constraints are primarily associated with older Intel 10 and 7 manufacturing technologies, highlighting the critical role of legacy product lines in meeting current market demands.

The observed trend of customers opting for less advanced hardware to refresh their operating systems suggests that enterprises are prioritizing proven technology and cost-effectiveness over bleeding-edge innovation. This indicates that for many applications, the benefits of cutting-edge chips do not outweigh the reliability and affordability of established solutions. The implications of this are important across many industries. While AI applications will continue to drive demand for chips, economic uncertainty will likely require companies to make trade-offs that result in continued demand for legacy technologies.