Intel’s Foundry Struggles Persist Amid Q3 Gains, Analysts Caution on Outlook

• Intel Q3 earnings exceeded forecasts with $13.3 billion in revenue and $2.9 billion in operating income, driven by external investments.

• Foundry segment narrowed losses to $2.3 billion on $4.2 billion revenue, but external customer revenue remains minimal at just $8 million.

• Q4 outlook projects $2.5 billion foundry loss and $4.1 billion revenue, raising concerns over share price amid market share erosion to AMD.

Intel Q3 2024 earnings deliver mixed results: beats on revenue but foundry losses persist. Discover key insights on manufacturing struggles and future outlook. Stay informed on Intel stock trends—read now for expert analysis.

What are the key highlights from Intel’s Q3 2024 earnings?

Intel’s Q3 2024 earnings revealed stronger-than-expected financial performance, with total revenue reaching $13.3 billion, surpassing analyst estimates. The results were bolstered by significant investments from the US government, SoftBank, and Nvidia, providing much-needed relief to the balance sheet. However, the core manufacturing segment continues to face substantial challenges, posting ongoing losses that underscore the difficulties in transforming Intel Foundry Services into a profitable venture.

How is Intel’s foundry business performing amid competition?

Intel’s foundry segment, launched in 2021 to serve external customers and compete with leaders like TSMC, reported a $2.3 billion operating loss on $4.2 billion in revenue for the quarter ending September 27, 2024. This marks an improvement from the $5.8 billion loss a year earlier, but external revenue remains critically low at approximately $8 million, per estimates from Bernstein analyst Stacy Rasgon. The business primarily supports internal chip production, limiting scalability and profitability. Forecasts indicate further strain, with Q4 losses expected to widen slightly to $2.5 billion on $4.1 billion in revenue, as noted in company guidance. Rasgon emphasized in his analysis that a true turnaround is not imminent, stating, “We understand the desire to claim victory for the embattled company, but this fight is far from over.” This persistent underperformance poses risks to Intel’s share price, especially as the company grapples with delayed process node advancements.

Intel’s 18A manufacturing process, anticipated to draw external designers, has instead been redirected toward internal products like the upcoming Panther Lake and Clearwater Forest chips. Executives acknowledged during the earnings call that yields on 18A are adequate but insufficient for achieving targeted margins, with peak production not expected until the end of the decade. The subsequent 14A node, aimed at attracting new clients, is still years away, and CEO Lip-Bu Tan indicated that capacity expansion will only proceed upon confirmed demand. According to Rasgon’s research, this cautious approach reflects the challenges of building a competitive foundry in a market dominated by TSMC, which produces most advanced chips in Taiwan.

Competition extends beyond manufacturing to the product side, where Intel is losing ground to AMD in key segments. Deutsche Bank analyst Ross Seymore highlighted in his report that recent optimism around foundry partnerships, new AI-focused chips, and government support may wane as investors refocus on underlying fundamentals, potentially creating headwinds for the stock. Bank of America analyst Vivek Arya echoed these concerns, pointing to slow internal adoption of new processes and intensifying US-based foundry competition as barriers to rapid cost improvements.

The US government’s acquisition of a 9.9% stake in Intel in August 2024 was framed as vital for domestic supply chain security, given reliance on overseas production for advanced semiconductors. However, TSMC’s $165 billion investment in US factories undermines this narrative, as Citi analyst Chris Danely observed. Danely remains skeptical about the foundry’s path to profitability, noting Intel is “years behind TSMC” and suggesting the third-party business might be better off sold. The prior CEO’s ambitious “five nodes in four years” initiative fell short, contributing to a stock decline in 2024, and current leaders admitted ongoing yield and margin issues during the call.

Frequently Asked Questions

What caused Intel’s stock to jump after Q3 earnings but then fade?

Intel’s shares rose up to 8% in premarket trading following the Q3 2024 earnings release, driven by revenue beats and investment announcements from the US government, SoftBank, and Nvidia. The gains dissipated as analysts emphasized persistent foundry losses and competitive pressures from TSMC and AMD, signaling no immediate turnaround in the core business.

Will Intel’s manufacturing investments pay off in the near term?

Intel’s foundry investments, including the 18A and future 14A processes, aim to build a robust US-based semiconductor supply chain, but profitability remains elusive. With external revenue minimal and peak 18A production years away, experts like those from Bernstein and Citi predict ongoing challenges, advising caution for investors seeking quick returns.

Key Takeaways

• Revenue Beat Amid Losses: Intel’s Q3 2024 revenue of $13.3 billion exceeded expectations, supported by external investments, yet the foundry’s $2.3 billion loss highlights structural issues.
• External Revenue Gap: Only $8 million from outside customers underscores the foundry’s internal focus, limiting growth potential against TSMC’s dominance.
• Future Uncertainty: Delays in 14A node and competition from AMD and TSMC suggest monitoring fundamentals closely; consider diversifying investments in semiconductors.

Conclusion

Intel’s Q3 2024 earnings offer a glimmer of stability through revenue outperformance and strategic investments, but the foundry business struggles persist, with narrow losses masking deeper challenges in external adoption and process node development. As competition intensifies from TSMC’s US expansions and AMD’s market gains, Intel must navigate supply chain priorities to regain momentum. Investors should watch for verified demand signals in upcoming quarters, positioning for long-term resilience in the evolving semiconductor landscape.