Intel (NASDAQ:INTC) reported third-quarter financial results on Thursday. This transcript is brought to you by Benzinga APIs.
5 billion. Intel anticipates a weak PC market due to memory issues, with a long-term positive outlook as AI applications grow.
Full TranscriptOPERATORThank you for standing by and welcome to the Intel Corporation’s third quarter 2026 earnings conference call. At this time, all participants are in listen-only mode.
After the speaker’s presentation, there will be a question-and-answer session. To ask a question during this session, you’ll need to press star 11 on your telephone.
If your question has been answered and you’d like to remove yourself from the queue, simply press star 11 again. And now I’d like to introduce your host for today’s program, Mr.
John Pitzer, Corporate Vice President of Investor Relations. John Pitzer (Corporate Vice President of Investor Relations)Thank you, Jonathan.
And good afternoon to everyone joining us today. By now you should have received a copy of the Q3 earnings release and presentation.
com. For those joining us online today, the presentation is also available in our webcast window.
I’m joined today by our CEO Lip Bu Tan and our CFO Dave Zinsner. Dave will then discuss overall financial results, including fourth quarter guidance, before we transition to answer your questions.
Before we begin, please note that today’s presentation does contain forward-looking statements based on the environment as we currently see it. As such, they are subject to various risks and uncertainties.
Our earnings release, most recent annual report on Form 10-K, and other filings with the SEC provide more information on specific risk factors that could cause the actual results to differ materially from our expectations. They also provide additional information on our non-GAAP financial measures, including reconciliation, where appropriate, to our corresponding GAAP financial measures.
Lip Bu Tan (Chief Executive Officer)Good afternoon, and thank you for joining us. The demand environment in Q3 was more balanced than previous quarters.
Strong momentum in DCAI drove upside and enabled the strongest revenue growth for the segment in 15 years. This was partially offset by weakness in CCG, driven by the industry-wide impacts from higher memory prices and limited IT budgets.
Against this backdrop, I am pleased by the progress we made growing our server supply in Q3. I am mindful about the ongoing challenges we face in future quarters to keep pace with the server demand.
The successful completion of our equity offering in August provided us with the necessary financial resources to capture the growth ahead. We are deploying this capital quickly and prudently.
We expect capex and purchase commitments for key components to increase significantly over the next several quarters. I want to thank our substrate, memory, foundry, and equipment suppliers for their strong partnership and collaborations as we work together to expand supply and support growing demand.
Turning to business units, first DCAI. Within our server business, we are making steady progress on our roadmap.
Granite Rapids on Intel 3 has become one of the fastest-ramping server products. Clearwater Forest, our first Intel 18A server product, is shipping for revenue, and demand for 2027 is significant, especially in CPU-dense, rack-scale infrastructure.
We were pleased to recently announce an agreement with Oracle Cloud Infrastructure to deploy our latest-generation CPUs to support their AI build-out. I also want to acknowledge headwinds limiting our progress to meet this extremely high AI-driven demand.
First, Intel 3 yield and cycle time continue to improve, but I am demanding significant execution from the team. Second, even as our Intel 3 wafer output ramps quickly, an industry-wide shortage of advanced organic substrates for our EMIB packaging is also impacting our ability to scale output.
While the teams have worked quickly to address the situation, it will impact our Q4 10-nanometer server shipments. Purpose-built silicon remains our fastest growing business segment, tripling over the last three years and poised to triple again over the next few years.
We see further growth opportunity with both existing and new potential customers, including AI labs, and expanding our IP portfolio to meet the needs of a wider array of customers. Lastly, we recently unveiled our Creston Island inference-optimized GPU.
This is a new market for us and it will take time to scale, but customer engagements are progressing towards firm commitments. Turning to our client business, in recent weeks our customers began signaling a PC slowdown based on memory prices and availability.
Year to date, system endpoint prices have increased significantly, placing additional pressure on already limited IT budgets. The pace of the PC correction has accelerated over the last two months as our OEM partners are aggressively managing inventory to match the softer sell-through.
While the next few quarters will be challenging for the PC market, our roadmap continues to strengthen and our long-term outlook remains positive. We have successfully ramped Panther Lake on Intel 18A, and demand for Wildcat Lake is outstripping supply.
Nova Lake, our first Intel 18AP client products, is tracking ahead of schedule with design wins expected to be twice those of Panther Lake at launch. We look forward to sharing more at CES in January as the market normalizes.
Intel Foundry execution continued to improve consistently during the quarter. Intel 3 and Intel 18A yields both increased again, with Intel 18A improving at a double-digit rate.
Wafer output on both nodes exceeded expectations. Intel 18AP remains on track for launch by year end across our internal product portfolio, and external customer engagement continues to build.
Intel 14A also remains on track. 9 PDK to select customers.
9 PDK, meeting industry-standard yield and performance criteria at release. As is standard practice in the foundry business, I have consistently maintained that we will not disclose customer details.
We are pleased by the progress we are making with EMIB and EMIB T for our internal products. Both continue to see significant external customer traction as well.
We continue to improve on execution, working with our supply chain to secure the capacity to meet the needs of our advanced packaging customers. Additional capacity continues to come online.
Intel 3 tool installation is progressing well in Ireland, as is the ramp of 18A in both Oregon and Arizona, including Fab 62, our second high-volume 18A fab. In New Mexico and Malaysia, we are adding capacity to support strong customer ramps for advanced packaging next year.
Looking to the future, I have always emphasized that rebuilding Intel is going to be a multi-year journey, and I remain firmly committed to making it happen. We are only one and a half years into this journey.
We have made enormous strides in these 18 months, including a dramatic resizing of our workforce, eliminating middle management and bureaucracy, streamlining our executive ranks, and establishing an almost entirely new leadership team. We still have much more to do.
The resurgence in demand for CPUs is a meaningful tailwind for us along our transformation journey. Increasingly, energy efficiency is becoming the most important metric for the AI infrastructure buildout.
While GPUs are great at thinking tasks, deterministic CPUs are far more efficient at finding tasks. While GPU reasoning queries run as high as multiple watt-hours of energy, a single CPU query could use only a fraction of the energy.
By our estimates, server CPU TAM, largely driven by agentic workloads, could increase as much as five times from where it is today, from $40 billion to more than $200 billion over five years. This makes the opportunity for Intel enormous.
We are, of course, mindful of the fierce competition underway as nearly every fabless company races to meet this unprecedented demand with their own offerings. But Intel is uniquely positioned to benefit from this demand in three ways.
First, as a custodian of x86, the most widely deployed ISA in the world, we are doubling down on x86 innovation and have an exciting roadmap of CPU innovations in the pipeline. Second, as one of the just three advanced-node semiconductor foundries in the world, and the only one domiciled in the United States, we are well positioned to support not only our own demand but also the demands of the wider fabless industry.
We are also open to building any CPUs at scale for our customers, fully agnostic to the underlying ISA. This is why I remain optimistic on the opportunities ahead for Intel, even as we have work to do.
Lastly, while we remain focused on executing against our near-term priorities, we cannot lose sight of what comes next. Intel has a deep portfolio of technology and IP that positions us to drive the next wave of computing.
We’ll continue to invest in breakthrough technologies, including silicon photonics, neuromorphic computing, advanced materials, and quantum computing, that we believe can unlock important new opportunities over time. ClassIQ’s overarching hardware-agnostic software platform layer provides a gateway for more consumers to explore quantum computing, and it is a wonderful complement to our already strong internal quantum hardware and software stacks and enables us to further extend our compute platform offerings to include QPUs in addition to CPUs, GPUs, and ASICs.
Post acquisition, Intel will become a full-stack, revenue-generating quantum computing company. In summary, while we did well in Q3, there’s clearly more work to do.
I’m disappointed that we were not able to meet strong customer demand in this quarter. Opportunity in front of us.
I want to thank our employees, partners, and suppliers for their tireless effort in this quarter. Dave Zinsner (Chief Financial Officer)Thank you, Lipu.
We delivered a strong quarter, exceeding our guidance for revenue, gross margin, and earnings per share. This marks the eighth consecutive quarter of exceeding our financial expectations.
Our Q3 results reinforce the essential role our server CPUs play in the buildout of superintelligence or AI infrastructure. Results also demonstrate our improving execution as we grow supply to capture the strong demand for AI compute.
Strong execution across our factory network and external supply chain drove better-than-expected server CPU output. This strength was partially offset by weakness in Client, where industry-wide PC consumption is being impacted by memory shortages and limited IT budgets.
1%, approximately 200 basis points higher than Q2 and our guidance. 38.
The upside was driven by higher revenue, stronger gross margin, and disciplined spending, which together produced better-than-expected operating leverage. 1 billion.
In early August, we further strengthened our balance sheet through a $23 billion equity offering. 01 to Q3 EPS.
That was not contemplated in our original guidance. Now moving to segment results.
3 billion, up 17% sequentially and nearly 80% year over year. Revenue was meaningfully ahead of our expectations as our factory network and external suppliers supported higher output.
The work our teams have done to increase supply is having a tangible impact. Based on our current outlook, DCAI revenue is on track to finish 2026 nearly $10 billion above expectations entering the year.
We also continued to see strong momentum in purpose-built silicon, with revenue increasing more than 50% sequentially and more than doubling year over year. Despite our progress to increase capacity, demand for DCAI products continues to meaningfully exceed available supply.
DCAI operating profit was $3 billion, representing 42% of revenue and increasing approximately $600 million sequentially. Granite Rapids is now the largest product family in our server portfolio as we continue to increase output from our Ireland facility.
Earlier this month at the Open Compute Project Global Summit, we demonstrated select Clearwater Forest configurations that scale beyond 46,000 cores per rack at approximately 133 kilowatts of total rack power, delivering best-in-class performance per watt. Customer interest in both product families is running ahead of our initial expectations.
1 billion, down 9% sequentially and below our expectations. We previously noted that memory shortages could pressure the second-half PC TAM.
That pressure intensified during Q3, particularly late in the quarter, and resulted in a meaningful adjustment in customer purchasing patterns. Despite the near-term weakness, we saw several positive developments.
Our client products on Intel 18A continue to ramp well. Wildcat Lake, our cost-optimized Intel 18A client CPU, increased units by approximately 70% sequentially and is sold out.
Lastly, our Edge business was more resilient, supported by continued momentum in Edge and physical AI design wins. 7 billion, up 16% sequentially, driven by better-than-expected growth on Intel Intel 3 and Intel 18A external foundry revenue was $411 million, an increase of $118 million sequentially, primarily due to a non-recurring customer program.
9 billion, an improvement of $236 million sequentially. Intel 3 costs improved approximately 15% from Q1 levels, while volumes increased in the mid-teens.
Sequentially, Intel 18A costs have declined approximately 40% since Q1, reflecting continued yield and cycle time improvements. Intel 18A yields continue their upward trajectory to industry-standard levels and ahead of our internal projections.
These results represent meaningful progress, although we still have considerable work ahead of us to deliver a sustainably profitable foundry business. Now turning to outlook, demand signals from our data center customers continue to strengthen.
We expect the industry to remain supply constrained throughout 2027 and into 2028. As Lip Bu discussed, the adoption of agentic AI is broadening the role of CPU.
Compute AI workloads are moving beyond prompt-based responses toward multi-step reasoning, orchestration, and autonomous persistent action. As a result, we continue to see strong demand for our DCAI products.
We now expect industry server CPU units to grow more than 30% in both 2026 and in 2027. Growth would be higher in both years if additional industry supply were available.
At the same time, the PC market is weakening after remaining resilient during the first half of 2026. We expect the 2026 PC unit TAM to decline approximately 12% with second-half units down more than 20%.
We do not expect a sustained recovery until memory availability improves and pricing begins to normalize. For 2027, we’re planning for the PC unit TAM to decline roughly 10%.
Against an easier comparison, our longer-term view of the PC market remains unchanged. Traditional PCs will play an important role in enabling AI applications and driving strong returns on AI infrastructure spending.
In addition, we’re just now seeing new agentic systems in the market. We also continue to see attractive longer-term opportunities in edge and physical AI as agentic applications spread across the economy.
Taking these factors together, we’re guiding Q4 revenue to a range of $15 billion to $16 billion. Our guidance includes an impact of roughly $300 million to revenue and 200 basis points to gross margin, based on our early assessment of the incident at Fab 28.
By segment, we expect DCAI revenue to grow mid-teens percent sequentially with purpose-built silicon growing faster than DCAI overall. Please note, almost all of the $300 million impact from Fab 28 is related to 10-nanometer server products.
We expect CCBG revenue to decline greater than 20% sequentially as customers move quickly to reduce weeks of inventory and align purchases with their expectations for 2027 consumption. In addition, revenue mix, especially the strong growth expected in purpose-built silicon, is creating difficult quarter-on-quarter compares.
These headwinds will be partially offset by continued yield and cost improvements on Intel 3 and 18A. 3 billion for the full year.
44 billion, representing a full quarter of shares issued for our August equity offering. Moving to CapEx, our 2026 gross capital expenditures remains on track to be $20 billion and we expect 2027 gross capital spending to be up strongly.
We have made good progress securing the equipment required to support our growth plans, with firm purchase orders to equipment suppliers increasing nearly 40% sequentially. We’re also accelerating clean room buildouts, including Fab 62 in Arizona, and exploring opportunities to accelerate in Ohio.
We will remain disciplined as we invest and we will not spend a dollar of capital unless we have confidence in the health of our products and process technologies and clear evidence of customer demand. Our confidence in all three is improving.
In closing, I want to offer a few words outlining the opportunity we see ahead. Our core server CPU market is growing faster than ever, and edge and physical AI represent meaningful incremental opportunities for client-class CPUs even as we navigate the current market conditions.
Importantly, as we improve our product execution and roadmap, we have opportunities to regain share and grow even faster than our underlying markets. Each represents tens of billions of dollars of new markets where our technology, manufacturing assets, and customer relationships provide us a differentiated opportunity to participate.
Taken together, we have line of sight to long-term double-digit revenue growth. With meaningful leverage and improving margins, we have significant work ahead of us.
However, the combination of stronger markets and the cultural changes set into motion by Lip Bu to improve execution, transparency, and discipline gives us increasing confidence in Intel’s long-term earnings power and free cash flow growth — a solid foundation for building sustainable shareholder value. John Pitzer (Corporate Vice President of Investor Relations)Thank you, Dave.
As a reminder, please ask one question and a brief follow-up in order to allow us to accommodate as many callers as possible. OPERATORCertainly.
And our first question comes from the line of Timothy A. Curry from UBS.
Timothy A. Curry (Analyst at UBS)Thanks a lot, Dave.
I’m wondering, with all the puts and takes and what’s going on in PC, I’m wondering if you can give us maybe some, you know, guardrails. Maybe you could say it, you know, next year.
I mean it seems like DCAI could grow $10 to $15 billion year over year, but PC I’m guessing is maybe down a touch. Dave Zinsner (Chief Financial Officer)Yeah, thanks, Tim.
Yeah, I’m not obviously going to guide next year, but maybe I’ll give you some qualitative information. I would say at a high level we see next year as a growth year.
We feel like the momentum that we saw in Data Center this quarter — and taking away the impact from Israel, that momentum would have continued into the fourth quarter — we see that continuing next year. You know, we talked about putting 40% more capacity in substrates, but a lot of that doesn’t hit us until the back half of the year.
In addition, we are still constrained on Intel 3, and we’re going to work towards moving, as Lip Bu said, some of our supply into Oregon, but it’s going to take a while before that comes out of the fab and gets into products. In addition, we talked about within DCAI, we also have purpose-built silicon.
That business has been growing at a 3x rate over the last three years. We see that growing at a 3x rate in the next three years.
And so we’re really bullish about that throughout 2027. Obviously the client is going to be the most difficult to call.
As I talked about, we see TAM declining in ’26 by about 12% on a unit basis. So that will be one dynamic.
Then there’s going to be this kind of inventory correction. We’re in the throes of that right now.
We felt a little bit of it in the third quarter; we’re going to feel a lot of it in the fourth quarter. We think it extends at least out into the first quarter.
The one added piece of this is, you know, we come into next year with Nova Lake as our product offering, and we think this is the best set of products we’ve had in a very long time. We think it covers the gamut of what’s required to participate in client.
We’re very excited about it. We think, you know, next year and in the future years, we’re in a kind of a market-share-gain type of environment for clients.
But we are very enthusiastic about the product side. And I just — you didn’t ask this question, but I’ll just extend it out beyond this year — we do think that the PC is going to go through a renaissance despite this.
And we think that as AI workloads start to shift around, there’s going to be a lot of workload required in the client space, either as a PC or as some kind of agentic box. And so we do see this market as being pretty interesting.
Timothy A. Curry (Analyst at UBS)I do, yeah.
So Dave, you did say that CapEx is going to be up a lot next year. I think a lot of us are thinking kind of like $30 billion.
But I guess the real question is, are you committed to generating free cash flow next year, or do you think because of the CapEx burden that that’ll be hard? Dave Zinsner (Chief Financial Officer)Yeah, that’s a good question.
Yeah, we haven’t exactly locked into the number. We don’t do that until we get towards the end of this year.
But we have a directional understanding of what’s likely to happen, and we have been putting POs in place with equipment vendors given the lead time, so we have some sense of what’s going to happen. I think next year is an investment year for us.
One thing that we have seen is you make the right investments, you ramp the node in the right way, you see profitability and you see return on invested capital. We talked about this as we were doing The equity offering at the beginning of August that we think we should be getting at least 20% ROI on all of these nodes as we invest in them.
But this, you know, next year is going to be one of those years where there’s a couple of things going on at the same time. We’re ramping 18A, we’re ramping Intel 3 to some extent and we’re making the appropriate investments to position 14A to begin production in 28.
So I don’t think that, you know, this will be a year in which we see positive cash flow. And by the way, that is why we raised the money that we did at the beginning of August was to get ourselves positioned to do this.
Longer term though, these businesses generate lots of cash flow and if you look at Intel 7 today, kind of 10 nanometer 7, that’s already a profitable node to us. Intel 3 is going to be profitable next year for us.
So we know we can make these businesses profitable, we know we can generate good cash flow from them, we know we can get 20% return. John Pitzer (Corporate Vice President of Investor Relations)Thanks, Tim.
OPERATORCertainly. Ben Reitzes (Analyst at Melius Research)Yeah, thanks a lot, guys.
I wanted to ask about some of the issues that you noted for 4Q and that may linger into 1Q and see if you can kind of size them versus prior expectations and then when they get better. You cited execution, obviously the Israel situation, which is 300, wondering what that’s going to be in the quarters after that and when that is solved—and sorry that that happened, by the way—and then the client.
Dave Zinsner (Chief Financial Officer)Thanks a lot. Yeah, what was the—so Israel, the client, what was the third one?
Ben Reitzes (Analyst at Melius Research)Just relative to the guide and Street? Yeah, the execution.
Dave, there was an extra comment around execution and Lip Bu made some comments. Dave Zinsner (Chief Financial Officer)Okay, well, on Israel, you know, we’ve been shut down for about two weeks.
We feel like we’re going to be starting up production here by the end of this week. While we’re doing that, we’re trying to assess all the wafers that are in the line and what’s usable and what’s not usable from those materials.
So, you know, this is somewhat of an early assessment, both really of 4Q and 1Q. You know, we think most of the write-offs of wafers or scrapping of wafers is likely to all kind of happen in the fourth quarter.
You know, that’s kind of what’s driving the 200 basis. I wouldn’t expect to see additional scrapping going on in the first quarter, but just keep in mind it’s early.
We’re going through all of that as we speak and we’ll of course update you as we go along. I think on the client side, obviously it’s going to kind of reset to this level and we’re going to have, I think usually you have a very similar inventory correction quarter to quarter, so I would expect it to generally be similar, other than you will have a seasonality effect in Q1 on client as well.
Beyond that, I think from an execution perspective, I have to think about some of the negative things, but a lot of the execution has been really positive. I mean, Lip Bu and the team have done a very good job driving Intel 3 yields, driving 18A yields, and working the substrate vendors.
Lip Bu was in Japan talking to many of the substrate vendors to make sure that we were getting allocated the appropriate supply. So I think we’re as positioned, or as well positioned, as anyone out there in terms of delivering supply.
It’s tight, it’s going to be tight this next quarter. It’s going to be tight into the first half.
Ben Reitzes (Analyst at Melius Research)Yeah. Then just with regard to the server velocity, there’s shortages and whatnot, but do you have an idea for when you think you can ramp and grow in line with the market that’s going on—that 200 bill plus?
Is that more second half next year based on your commentary? Lip Bu Tan (Chief Executive Officer)Yeah, good question.
I think, Ben, first of all, I think the server—the biggest revenue for us is the Granite Rapids that’s on the Intel 3. Clearly we are continuing to drive efficiency in terms of yield.
And then secondly we also try to expand the capacity and I think Dave mentioned about Oregon. We are planning to have that Intel 3 in the second half of next year to be in production so that we can supply some of the demand from the customer.
And then clearly we have the Clearwater Forest coming up and then we are shipping in revenue that’s on 18A. We should have capacity for that.
And then Diamond Rapids, that will be 2027, we have 18A P will be ready for that. And of course the Coral Rapid coming up in 2028, that will be on the 14A.
John Pitzer (Corporate Vice President of Investor Relations)Thanks, Ben. OPERATORCertainly.
Our next question comes from the line of Joseph Moore from Morgan Stanley. Dave Zinsner (Chief Financial Officer)Answer?
Yes. You know, what we’re taking offline to put Intel 3 into Oregon is 18A wafers which were generally going to build Panther Lake products.
So, you know, we see the opportunity with some of that capacity freed up to go produce more data center wafers. Just keep in mind that we’re not only constrained on the wafer side, we’re also constrained on the substrate side.
Joseph Moore (Analyst at Morgan Stanley)Yeah, I do. How do you see server market share next year?
I think you talked about 30% unit growth. AMD is guided to 70% revenue growth.
The ARM camp seems to be growing quite quickly. Lip Bu Tan (Chief Executive Officer)Sure, I think that’s a good question.
So clearly we have a roadmap. We like what we have in terms of Coral Rapid will be competitive to AMD and then next generating product, the TipTalk, will be ahead of the AMD on that.
So I think stay tuned. We’ll continue to drive leadership.
CPU is really our franchise. OPERATORCertainly.
Our next question comes from the line of Stacy Raskin from Bernstein Research. Stacy Raskin (Analyst at Bernstein Research)Hi guys, thanks for taking my questions.
I wanted to dig into gross margins a little bit. So I get that the 38% guidance I guess would have been 40 without the unfortunate situation in Israel.
But as I’m looking into next year, how do I think about the overall drivers? I’ve got—clearly I have a client flush and maybe utilization issue, which is a negative.
I wonder if that mix shift is a headwind, plus ASICs and packaging and everything. And maybe on the other side though, maybe mix towards servers is a positive, maybe pricing helps.
I’m just trying to get a feeling of the gross margin evolution in this kind of environment given all of those puts and takes, because it just seems like there’s a lot of them. Dave Zinsner (Chief Financial Officer)That’s a good question, Stacy.
There are definitely a lot of moving pieces. I think from a margin perspective, the Israel piece—it’s probably, on a margin basis, going to be really more of a Q4 event.
I don’t expect a significant amount in Q1 in terms of scrapping. Usually if we can identify it, we’ll scrap it in the quarter we have.
Xeon demand remains really strong and I think I mentioned Granite Rapids is now margin accretive for us. And we will also continue to be focused on both Intel 3 and 18A.
Their structural cost is what we can focus on more—is yields, throughput, all of those. We did very well in Q3.
We expect to do better in Q4 and the goal is to continue to drive that through the year. You’re right.
On 18A, the loading isn’t going to be where we want it. We’re fixing a little bit of that with putting Intel 3 in Oregon.
The other headwind for us, which is I think a positive viewed the right way, is our purpose-built silicon business and it’s kind of in its early stages. Its margins are below the corporate average, but we see tremendous growth there.
And Lip Bu and I have really decided to focus on driving the gross profit. And so we’re just going to grow the gross profit.
That’ll grow the earnings. I think when you put all that together—and it’s so many puts and takes, it’s hard to quantify—I’d still lean towards the 40 to 60 fall-through.
That’s probably what we’re shooting for. So if we have a growth year next year, we should see gross margin expansion, given that kind of rule of thumb.
Stacy Raskin (Analyst at Bernstein Research)I do, yeah. I guess I wanted to ask about PCs.
So, I mean, Q3 was probably the worst Q3 I’ve seen for PCs in at least 20 years, maybe more, sequentially. So it does sound like customers probably built inventory in Q3, I guess.
Can you confirm that? And then it sounds like that they’re flushing out a bunch.
In Q4 I kind of get. And maybe even in Q1 it sounds like you think things get better in the second half, as I suppose, memory supply.
Dave Zinsner (Chief Financial Officer)Yeah, let me be clear. Yeah, it’s a good question, Stacy.
Let me be clear. You know, we think that, you know, you’re dead on that Q4, Q1 are going to be likely the two quarters in which there’s most of the inventory correction and, you know, that impacts us more than the TAM declines.
So we will see that in the first—and call it Q4, Q1, maybe stretching a little bit into Q2. After that it does recover back to where, you know, theoretically, where, you know, billings to us are somewhat equivalent to consumption.
But, you know, make no mistake, we are not optimistic about next year in terms of memory. You know, we think that it is going to impact the TAM.
We think TAM will be down 10% on a units basis next year and then we’ll have to see in 28 whether things improve. John Pitzer (Corporate Vice President of Investor Relations)Thank you, Stacy.
OPERATORCertainly. Vivek Arya (Analyst at Bank of America Securities)Thanks for taking my question.
For the first one, if I take your, I think, implied DC guidance for Q4, you know, that puts it at about eight and a half billion or so. And if I annualize that, that’s like mid-30s billion in terms of a conceptual target for next year.
So I’m curious, is that a doable floor? Can you do better?
Is there kind of ASP expansion, you know, just given demand is outstripping supply? Dave Zinsner (Chief Financial Officer)Yeah, I think that’s a good starting point.
I think that’s the right way to think about it. What we would characterize is that the first half of ’27 is likely to be tighter in terms of wafers and substrates.
So we do expect it to be a big growth year. I mean, keep in mind also that we roll our purpose silicon, our ASIC business, in under that business unit.
Vivek Arya (Analyst at Bank of America Securities)Yes, thank you. I was hoping to get an update on engagements with external customers in your foundry, both on the packaging side and then also, more importantly, Lip Bu, on the wafer processing side.
Are you expecting external customers for 18A, or should we assume that all the engagements will be on 14A? And when do you think Intel gets the confidence to move them from sort of the evaluation to the tape-out or tangible revenue column?
Lip Bu Tan (Chief Executive Officer)Good, Vivek, thank you so much for the question. So I think clearly first question you have is about the packaging.
Our EMIB team is making great progress. We have been very focused on capacity on the substrate, making sure that we can secure the capacity we need and also the yield profile for the capacity from substrate and material.
Secondly, we focus on the yield, and we are improving substantially. And then thirdly is the cycle time.
And so far, under the leadership of Seok-Hee Lee—he used to be CEO of SK Hynix, expert in process integration—he’s done a fabulous job, very dedicated. I think we get a lot of capacity in the next two years in terms of the substrate material, and we’re also improving the yield as the days go by.
And then overall I think we’re going to have some—stay tuned. And then secondly, on the 18A, we’re making great progress in volume production from Panther Lake and then clearly on the Wildcat Lake.
And so I think those, I think internally we’ve been using the yield, we are quite happy with the performance, and right now we also have inbound interest from the external customer and we are intensively working with them, and they are very pleased with the yield. So I think 18A, stay tuned.
We have some good progress on that. On the 14A, we made tremendous progress.
9 PDK we already released to our select customers. They already responded very actively, working with us.
And then the other part is also, I think in terms of performance, yield, all the metrics, and defect density and the variation, we are making daily improvement on that so far. We are very pleased.
John Pitzer (Corporate Vice President of Investor Relations)Thanks, Vivek. OPERATORCertainly.
P. Morgan.
P. Morgan)Yeah, good afternoon.
Thanks for taking my question. Commencing second half of this year there’s a number of new GPU and XPU platform launches.
Most of these new launches are going to continue ramp to the first half of next year given the strong CPU attached to these platforms, and many of them are Intel x86 CPU-based platforms. Dave Zinsner (Chief Financial Officer)Yeah, I mean I would avoid guiding too much the quarter.
I think your overall premise is right. There’s going to be a strong driver of demand for CPUs.
We see that continuing all through next year. You know, we’re working on the supply side of the equation to make sure that we can meet what customers need.
So maybe that’s one added data point I’d make sure that you’re using when you’re modeling. Lip Bu Tan (Chief Executive Officer)Just to add on that, I think clearly you saw our announcement with Oracle Cloud, and we also have multiple customers.
They are all interested to sign up the LTA agreement with us so that makes sure that we can secure the capacity, not the CPU rollout for them. P.
Morgan)Yeah. On the factors that the team has control over and as a reflection of the continued yield, reliability, manufacturability improvements, I think back in Q2 both Panther Lake and Granite Rapids gross margins were below corporate average.
But as Intel 3 and 18A saw further yield improvements in the third quarter, you did mention Xeon 6 Granite Rapids on Intel 3 accretive to gross margins in Q3. Dave Zinsner (Chief Financial Officer)So we have definitely made meaningful improvement on the gross margins of Panther Lake.
It’s not yet at or above the corporate average, but we have made huge strides, and this is just a matter of grinding it out on yields and throughput and driving the right scale and so forth. And these will be accretive gross margins over time.
John Pitzer (Corporate Vice President of Investor Relations)Thanks, Harlan. OPERATORCertainly.
J. Muse from Cantor Fitzgerald.
J. Muse (Analyst at Cantor Fitzgerald)Yeah, thanks for taking the question, I guess.
First question, going back to the capex you talked up significantly. Curious, you know, how are you thinking about spend on WFE versus buildings?
I think in the past you talked about, you know, majority of the incremental spend on buildings. Dave Zinsner (Chief Financial Officer)Yeah.
So we have, I think, a significant ramp in equipment spend this quarter, and it’s expected to be even more significant next quarter. So a lot of what we’re spending on now is really equipment.
You know, we have made the investments. We’re, I would call it, in a lot of cases putting the finishing touches on some of the space, and most of the spend is going towards equipment.
J. Muse (Analyst at Cantor Fitzgerald)Yeah, I do.
On the PC side, I know you’ve talked about units down 10% next year for the industry. Curious if you could comment how you’re thinking about mix shift and what impact that might have on your pricing.
J. Dave Zinsner (Chief Financial Officer)Yeah.
I mean, we have, I would say, we have seen a, you know, we have seen strong demand in Panther Lake on a relative basis. You know, obviously the whole market is coming off, but Panther Lake is holding its own.
You know, we also put a lot of effort into a product called Wildcat Lake, which is a cost-optimized part. We’ve seen significant growth in Wildcat Lake.
You know, as we go into next year, you know, we’ll have Nova Lake. And I think the important aspect of Nova Lake is, you know, we had a bit of a hole in our portfolio for high-end desktop and Nova Lake filled in that gap.
So, you know, I would expect us to do pretty well on a mix basis because we should see better traction on the high-end desktop as well. So, you know, we’ll see how it goes.
Lip Bu Tan (Chief Executive Officer)I want to thank everyone for joining us today. We made good progress this quarter on our journey to transform Intel, but we still have a lot to work ahead of us.
OPERATORThank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program.
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