Intel Poised for Q3 Earnings Release Amid Market Pressures

Intel stock (NASDAQ: INTC) is set to announce its Q3 2024 results on October 31. Analysts anticipate revenue to be approximately $13.1 billion—aligning with consensus estimates but marking a decline of about 8% year-over-year. The projected net loss is $0.01 per share, slightly better than consensus predictions. For more insights, refer to our Intel Earnings Preview.

Q2 Performance and Market Challenges

In Q2 2024, Intel reported product revenue of $11.8 billion, reflecting a 4% increase compared to last year, largely thanks to stronger PC chipset sales. However, the global PC market faced a downturn in Q3, with shipments dropping 1.3% year-over-year to 62.9 million units, as reported by Gartner. Despite stiff competition from AMD’s Ryzen series, Intel managed to gain market share in entry-level mobile CPUs for devices like Chromebooks. Nonetheless, on the server front, AMD’s EPYC chips continue to pressure Intel, particularly due to Intel’s delays in moving to smaller process nodes. In Q2, Intel’s Data Center and AI sales fell by 3%, and similar challenges may carry on into Q3, although potential gains could arise from its Sapphire Rapids processors.

Intel’s Foundry Business in the Spotlight

Intel’s foundry business is a key focus, as the company aims to produce chips for other semiconductor firms, competing with giants like TSMC and Samsung Electronics. This business has encountered challenges due to previous missteps, leading Intel to outsource much of its wafer production for new chips. Intel expects this segment may not break even until 2027, prompting us to watch for updates closely.

New Manufacturing Process: A Game Changer?

The success of Intel’s foundry initiatives is closely tied to its 18A manufacturing process, slated to begin production in 2025. In early August, Intel announced significant progress, confirming that chips produced with this process have successfully powered on and run Windows within the company. Transitioning server and PC chips to this new manufacturing node will enable Intel to stop outsourcing to TSMC, potentially leading to higher efficiency and reduced costs. Should Intel execute its plans effectively, the stock could see considerable upside; however, failure to deliver could push shares down to $10. Recently, Intel secured critical contracts, including significant wins for producing AI chipsets for Amazon’s AWS and over $3 billion in contracts from the Pentagon.

Volatility and Market Comparisons

Over the past four years, INTC stock performance has been inconsistent, with annual returns fluctuating significantly compared to the S&P 500. The stock saw a 6% return in 2021, a steep decline of 47% in 2022, and a remarkable 95% rebound in 2023. In comparison, Trefis’ High Quality (HQ) Portfolio, which comprises 30 stocks, has proven to be less volatile and has outperformed the S&P 500 annually throughout the same time frame. This raises questions about whether INTC might encounter similar performance issues over the next year or if it could stage a recovery.

Cost-Cutting Measures and Future Outlook

Currently, Intel’s valuation stands at a reasonable 20 times projected 2025 earnings. The company is significantly focused on cost management, planning to reduce its workforce by over 15%—potentially leading to more than 15,000 layoffs—and aims to cut expenses by as much as $10 billion by next year. These measures may help bolster margins as Intel readies for the next wave of CPU, GPU, and foundry offerings.

Potential for Future Growth

The surge in AI popularity post-Covid-19 has diminished demand for traditional CPUs in PCs and servers, which are crucial for Intel. Nonetheless, an uptick in computer upgrades might occur soon as users refresh aging machines. This scenario could significantly benefit Intel, especially as it plans to unveil new chips and innovative manufacturing technologies. Currently, we estimate Intel’s stock price to be around $30 per share, which represents a 35% increase from its current market price of $22. Additional information on Intel’s valuation and growth catalysts is available in our Intel Valuation analysis.

[1] Returns as of 10/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.