Intel's share price sank by nearly a quarter on Thursday after the company reported a deep decline in PC processor sales in its third-quarter results, overshadowing strong revenue gains in datacenter and AI products. CEO Lip Bu Tan said customers were signaling a PC slowdown based on memory prices and availability, and that rising system-endpoint prices were putting pressure on IT budgets. He predicted the market could shrink by 12 percent next year.
Intel's Q3 revenue rose 21 percent year on year to $16.5 billion, at the high end of its guidance, while gross margins of 43 percent beat forecasts by two points. Datacenter and AI product revenue jumped 78 percent. Revenue for client computing and physical AI products fell five percent year over year and nine percent from the previous quarter, to $8.1 billion.
"In recent weeks, our customers began signaling a PC slowdown based on memory prices and availability," Tan said in prepared remarks. "Year-to-date system end-point prices have increased significantly placing additional pressure on already limited IT budgets." He added that the pace of the correction had accelerated over the last two months as OEM partners managed inventory aggressively. Tan predicted the PC chip market would shrink by 12 percent next year and remain tough until memory availability and prices normalise, which may be years away given that memory maker SK Hynix this week forecast shortages persisting until 2030.
To counter the gloom, Tan argued that energy efficiency would drive a resurgence in CPU demand, particularly for agentic AI workloads. He estimated the server CPU total addressable market could grow as much as fivefold from $40 billion to more than $200 billion over five years.
But Intel may struggle to meet that demand. Chief financial officer Dave Zinsner told investors that while a strong driver of CPU demand was expected all through next year, Intel would likely not fully meet customer requirements, with supply conditions more challenging in the first half than the second. Intel is trying to shift production around its factories, including devoting some PC chip production capacity to datacenter products.
Tan admitted disappointment that Intel could not meet strong customer demand in the quarter, saying his plan to rebuild Intel was a multiyear journey. He pointed to progress on manufacturing processes and a restored engineering culture, but investors did not share that confidence. Shares began the day at $92.96 and fell to $70.87 in after-hours trading, a 23.7 percent slump.
Analysis
Why This Matters
- Intel's dominant position in PC chips makes its sales decline a bellwether for the broader PC industry, signalling a prolonged downturn driven by memory costs.
- The company's success in datacenter and AI products is undercut by its inability to meet demand due to supply constraints, highlighting the fragility of the semiconductor supply chain.
- CEO Tan's projection of a fivefold CPU market expansion tied to agentic AI underscores a potential shift in computing architecture away from GPU-only reliance, with strategic implications for the entire tech sector.
Background
Intel, once the dominant supplier of PC processors, has been navigating a challenging period marked by increased competition and manufacturing setbacks. The company has undertaken a restructuring under CEO Lip Bu Tan, including workforce reductions and leadership changes. The current drop in PC sales is attributed largely to memory price increases and inventory corrections, with the impact expected to persist through 2026 and beyond. Meanwhile, datacenter and AI products have emerged as a growth area, constrained by supply chain bottlenecks.
What to Watch
- Intel's ability to resolve silicon wafer supply issues and meet CPU demand in the first half of next year.
- The trajectory of memory prices and the duration of shortages; SK Hynix's prediction of a 2030 end point will be tested.
- Signs of whether agentic AI workloads indeed translate into a CPU market expansion, as Tan predicts, or if GPU-based computing retains dominance.
Checked
12 claims in this story checked against 1 source: 11 supported.
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- SupportedIntel shares fell nearly a quarter on Thursday after the company reported a deep decline in PC processor sales in its Q3 results.www.theregister.com - Articles: “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”
- Partly supportedThe market that could shrink 12% next year is described in the summary as the chip market generally.www.theregister.com - Articles: “before predicting that the market for PC chips will shrink by 12 percent next year”
- SupportedTan said in prepared remarks, “In recent weeks, our customers began signaling a PC slowdown based on memory prices and availability.”www.theregister.com - Articles: “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.””
- SupportedTan said, “Year-to-date system end-point prices have increased significantly placing additional pressure on already limited IT budgets.”www.theregister.com - Articles: ““Year-to-date system end-point prices have increased significantly placing additional pressure on already limited IT budgets.””
- SupportedIntel’s Q3 revenue rose 21% year on year to $16.5 billion, at the high end of its guidance.www.theregister.com - Articles: “a 21 percent year on year revenue jump to $16.5 billion”
- SupportedIntel’s gross margin was 43%, two points above its predictions.www.theregister.com - Articles: “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.”
- SupportedDatacenter and AI product revenue grew 78%.www.theregister.com - Articles: “helped by 78 percent growth for datacenter and AI products”
- SupportedRevenue for client computing and physical AI products was $8.1 billion, down 5% year on year and 9% from the previous quarter.www.theregister.com - Articles: “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.”
- SupportedSK Hynix forecast that memory shortages would persist until 2030.www.theregister.com - Articles: “Korean memory-maker SK Hynix this week predicted that memory shortages will persist until the year 2030.”
- SupportedTan estimated that server CPU total addressable market could grow as much as fivefold, from $40 billion to more than $200 billion, over five years.www.theregister.com - Articles: “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.”
- SupportedCFO Dave Zinsner said Intel would likely not fully meet customer requirements, with supply conditions more challenging in the first half of next year than the second.www.theregister.com - Articles: “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.”
- SupportedIntel shares started the day at $92.96 and reached $70.87 in after-hours trading, a 23.7% slump.www.theregister.com - Articles: “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.”
