Intel struggles to rebound even after massive Nvidia deals and US subsidies

Intel reported a stronger third quarter that briefly lifted its stock, but the core business is still struggling. The company’s financial results came in above analyst expectations after large investments from the US government, SoftBank, and Nvidia, giving the balance sheet some relief.

The stock jumped as much as 8% in premarket trading before the gains faded. Analysts were quick to point out that the key problem is still the manufacturing segment, which continues to lose money.

The company opened Intel Foundry Services to outside customers in 2021. The goal was to turn its internal manufacturing into a competitive foundry business. The segment remains far from profitable.

For the quarter ending Sept. 27, the foundry posted a $2.3 billion loss on $4.2 billion in revenue, which is narrower than the $5.8 billion loss in the same period last year.

But forecasts show the loss rising to $2.5 billion and revenue shrinking to $4.1 billion in the fourth quarter. Analysts said this situation is a risk for the share price moving forward.

Intel’s manufacturing struggles continue

Stacy Rasgon of Bernstein wrote that investors should not assume a turnaround yet, saying, “We understand the desire to claim victory for the embattled company, but this fight is far from over.”

One of the biggest issues is that only $8 million of foundry revenue came from external customers, according to Rasgon’s estimates. The business is still mainly serving internal needs, which limits growth.

The company’s 18A manufacturing process was expected to attract outside chip designers. That did not happen. The process will now be used mostly for internal products.

The next manufacturing process, 14A, is planned as the offering intended to bring in new external clients. CEO Lip-Bu Tan told analysts that the company is in talks with potential customers and is encouraged by early feedback.

But Rasgon noted, “14A remains a very long way off.” The company also said it will only expand 14A capacity when it sees verified demand, not before.

The product business is also under pressure as the company loses market share to AMD. Some analysts warned that the current optimism, driven by announcements around foundry partnerships, new chips, and AI projects, may fade once attention returns to fundamentals.

Deutsche Bank analyst Ross Seymore wrote that the shift back to financial reality could lead to “headwinds” for the stock.

Competition and capacity delays impact outlook

The company has argued that its manufacturing role is important for the US supply chain, since most advanced chips are produced in Taiwan by TSMC. This argument helped the company when the US government acquired a 9.9% stake in August.

However, TSMC is investing $165 billion to build new factories in the United States, weakening that supply-chain defense.

Citi analyst Chris Danely said investors may believe the foundry can become profitable, but he does not. He said the company is “years behind TSMC” and suggested that the third-party foundry business should be sold.

The previous CEO launched a plan to introduce “five nodes in four years” to catch up in chip manufacturing, but that plan missed expectations and the stock fell in 2024.

Executives admitted on the latest call that yields on 18A are “adequate” but not enough to reach needed margins.

They also said 18A will not reach peak production until “the end of the decade.” That adds uncertainty around demand for new chips like Panther Lake and Clearwater Forest, both made on 18A.

Bank of America analyst Vivek Arya said he does not expect a major cost improvement soon, citing slow internal adoption and strong foundry competition in the United States.

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