Intel Says Scarce Memory Will Shrink the PC Market

SANTA CLARA, Calif., Oct. 29 — IntelIntel had a better third quarter than it had promised, then told investors on Thursday that the personal computer market is shrinking because memory chips are scarce and dear. Revenue rose 21 percent from a year earlier, to $16.5 billion, but Intel forecast $15 billion to $16 billion for the fourth quarter and said PC makers were cutting their inventories fast.

Its shares, which closed Thursday at $92.07, fell 23 percent in after-hours trading, to $70.86 at 8 p.m. Eastern, and were at $68.41 at 5:50 a.m. on Friday, before the regular open, down 25.7 percent.

Intel now expects sales of PCs across the industry to fall about 12 percent in units this year and about 10 percent in 2027, and it blames memory.Unit TAMIntel’s term for the whole market’s PC sales, counted in units. Intel’s own client revenue can fall faster than the market while PC makers work down their inventories, the company said on the call. “We do not expect a sustained recovery until memory availability improves and pricing begins to normalize,” David Zinsner, the chief financial officer, said on the company’s call, according to a transcript published by MarketBeat. Its client-computing group, which sells PC chips, is still Intel’s largest business, with $8.1 billion of the quarter’s revenue.

Of 2027, Mr. Zinsner told Stacy Rasgon of Bernstein, “make no mistake, we are not optimistic about next year in terms of memory.” Lip-Bu Tan, the chief executive, said the prices of finished systems had “increased significantly” this year, “placing additional pressure on already limited IT budgets.”

The quarter itself beat Intel’s guidance. On its adjusted, non-GAAP measure Intel earned 52 cents a share, against the 38 cents it had forecast, Mr. Zinsner said; under standard accounting it earned 60 cents, helped by a $1.005 billion gain from revaluing a derivative liability tied to Intel shares earmarked for the Commerce Department.Escrowed SharesIntel shares held in escrow, to be released to the U.S. Department of Commerce as Intel performs under its CHIPS Act Secure Enclave agreement. Changes in the fair value of the derivative liability tied to them, for shares released in the quarter and shares still in escrow, count in Intel’s standard earnings but not in its non-GAAP figures.

Data Center and AI revenue rose 78 percent, to $7.3 billion, “our strongest data center revenue growth in 15 years,” Mr. Zinsner said in the release. Client-computing revenue fell 5 percent. Intel Foundry, the manufacturing arm, had revenue of $6.7 billion, most of it from Intel itself, and an operating loss of $1.9 billion.

For the fourth quarter Intel forecast an adjusted gross margin of 38.0 percent, down from 44.1 percent, and adjusted earnings of 25 cents a share. Ben Reitzes, an analyst at Melius, told the executives on the call that “the guide is about $1.8 billion below the street.”

Three Causes

Three troubles stood out on the call. The first was Fab 28, at Kiryat Gat in southern Israel, where “an unfortunate and tragic accident led to an extended shutdown,” Mr. Tan said. Two of the three workers injured in a blast at the plant on Oct. 14 later died, The Times of Israel reported; Intel said it was “deeply saddened by the loss of two workers following the tragic incident at our Kiryat Gat site,” as quoted by the paper.Fab 28Intel’s chip plant at Kiryat Gat, in southern Israel. Israel Police suspected the Oct. 14 blast was a gas cylinder explosion, The Jerusalem Post reported that day.

The plant has been shut for about two weeks, and Intel expects to be “starting up production here by the end of this week,” Mr. Zinsner said. The guidance includes about $300 million less revenue and 200 basis points less gross margin from the shutdown, he said, and the first quarter of 2027 is likely to take a similar hit to revenue.

The second is the PC makers. Intel expects its client revenue to fall by more than 20 percent from the third quarter “as customers move quickly to reduce weeks of inventory,” Mr. Zinsner said. The third is packaging: “an industry-wide shortage of advanced organic substrates for our EMIB packaging is also impacting our ability to scale output,” Mr. Tan said.

Those limits leave Intel short of server chips, whose demand “continues to meaningfully exceed available supply,” Mr. Zinsner said. “Our immediate priority is to unlock additional supply to meet extraordinary demand for our Xeon family, while strengthening our product portfolio and roadmap,” Mr. Tan said in the release.

Our immediate priority is to unlock additional supply to meet extraordinary demand for our Xeon family, while strengthening our product portfolio and roadmap.

Supply costs money. Mr. Zinsner said Intel would “probably not” have positive free cash flow next year, and that it had to “get through what is basically a knothole here in 2027.” Gross capital spending is on track to be $20 billion this year and will be “up strongly” in 2027, he said. In August Intel completed a $23 billion public equity offering; its diluted share count was 5.31 billion in the quarter, against 4.53 billion a year earlier.

The Other Side

Memory sellers had a different evening. Sandisk, which makes flash memory, reported revenue of $11.0 billion for the quarter to Oct. 2, up 378 percent from a year earlier, at a gross margin of 85.0 percent, against 29.8 percent a year before. Its data-center sales rose 61 percent from the previous quarter, to $4.8 billion. The shares did not follow: Sandisk was 7.5 percent below its Thursday close in pre-market trading at 5:50 a.m. on Friday, and Micron, which closed Thursday at $934.27, down 4.98 percent, was 5.0 percent lower again.MUNasdaq884.74▼49.53−5.3%Micron · Friday’s session

Intel’s shortfall is its rivals’ opening, by its own account. Asked by Joseph Moore of Morgan Stanley about server market share, Mr. Zinsner said, “I really see market share next year being a function of supply.” AMD’s shares fell too, by 8.2 percent in pre-market trading at 5:50 a.m. Intel expects PC makers to sell fewer machines now that system prices have risen; its shareholders have already taken a hit.

What to watch: whether Fab 28 starts production again by the end of this week, as Mr. Zinsner expects; Apple’s results, with its call at 5 p.m. Eastern on Monday, Nov. 2, for what memory is costing a maker of computers; and AMD’s report after the market closes on Tuesday, Nov. 3.