Intel Q3 24 – Breathing Space

No real progress other than on bloat.

• A PC bounce and cash inflows from investors have given Intel some breathing space, but with very little clarity on strategy and continued inroads by competitors into its core markets, leave me pretty sanguine about its outlook.
• Q3 24 revenues / EPS were $13.7bn / $0.23, comfortably ahead of forecasts of $13.2bn / $0.03.
• Furthermore, Intel went on to guide well for the coming quarter with revenues of $12.8bn – $13.8bn ($13.3bn) and gross margins of 36.5% broadly in line with revenue expectations but more profitable than expected.
• Intel talked a good game in terms of AI, but the reality is that the AI spend is almost entirely passing Intel by.  
• Revenues in the data centre fell by 1% YoY (accounting for the impact of deconsolidating Altera) even though data centre spending is up more than 30% YoY, in a clear sign that Intel continues to miss out.
• The bright spot was Client, where revenues grew by 5% YoY as the PC market is enjoying a bounce thanks to post-COVID normalisation, and Intel has some new products, but its competitive position remains unchanged.
• Where Intel has made real progress is on its balance sheet, where it has investments from the US Federal Government, SoftBank and Nvidia and in cutting its bloated cost base.
• This was evident in both the cash flow statement and the balance sheet, where the core metrics of financial health have improved materially.
• However, all this does is buy Intel time, and the real issues that are facing the company remain unaddressed.
• These are that Nvidia, AMD and others are eating into its market share in the data centre as Intel remains uncompetitive in the AI industry and in PCs, where AMD and Arm and Qualcomm are making steady headway.
• Intel touted its AI accelerator, where Mr Tan thinks he can do well in inference despite market evidence to the contrary, in AI PCs, which are really under threat, and in ArcGPUs, which I think will now be shut down (despite emphatic denials) as a result of its new relationship with Nvidia.
• Foundry also registered revenue declines, and with Nvidia clearly unwilling to commit to manufacturing at Intel, I still think that there is a long-term question mark over this business.
• I am sure that the factories will be built and will manufacture chips, but whether there is an Intel badge on the side of the building is another matter entirely.
• Consequently, on the stuff that really matters for the long-term viability of this company, this quarter has seen little to no progress, although Mr Tan has done a great job at adapting to the very difficult situation that he has inherited.
• Hence, I don’t see any reason why the sharks will not continue to eat Intel alive, and I still think that the long-term outlook remains very bleak.
• However, Mr Tan has bought himself some breathing space by fixing the balance sheet, cutting costs and benefiting from a bounce in the PC market, meaning that he now has an opportunity to sit down and figure out what direction the company should take.
• I continue to think that the x86 processor is increasingly obsolete and that over time, it is going to be completely replaced.
• The first concrete sign of this will be when AMD launches a PC processor based on Arm to compete with Qualcomm, which at the moment has the entire Windows on Arm opportunity to itself.
• Hence, without a clear strategy that points the way out of x86 obsolescence, I have no faith in a long-term turnaround, and as a result, the recent rally based on personalities and hope looks overdone.
• I continue not to want to own this at any price.