Intel shares plunge as Israel factory blast compounds weak outlook
The chipmaker forecast fourth-quarter revenue of $15 billion to $16 billion, below Wall Street expectations. The factory explosion in Israel will cost it roughly $600 million in lost revenue over two quarters because it has been shut down for about two weeks.
Intel shares plunged around 20% in after-hours trading on Thursday after the chipmaker forecast fourth-quarter revenue and earnings below Wall Street expectations, with a factory disruption in Israel adding to pressure from a slowdown in the personal-computer market.
The outlook comes despite a strong third quarter, when revenue rose 21% year over year to $16.5 billion and adjusted earnings exceeded analysts’ expectations. Intel said demand for its data center processors remained robust, reporting its strongest data center revenue growth in 15 years, but warned that weakness in the PC market would persist through at least the first half of next year.
The company also faces uncertainty over production at its Kiryat Gat facility in Israel, where an explosion disrupted operations for two weeks. Intel estimates that the incident will reduce fourth-quarter revenue by about $300 million and gross margins by roughly 200 basis points. Chief Financial Officer David Zinsner said the company expects a similar revenue impact in the first quarter. The explosion killed two and seriously injured one.
Intel forecast fourth-quarter revenue of $15 billion to $16 billion, below analysts’ average estimate of $17.07 billion, according to LSEG data. The company expects non-GAAP earnings of 25 cents per share, compared with the 43 cents analysts had anticipated. Its forecast for earnings per share attributable to Intel under generally accepted accounting principles, or GAAP, is 10 cents.
The market reaction puts renewed pressure on a stock that has more than doubled this year, as investors weigh demand for AI-related computing against manufacturing constraints, weaker PC sales and the costs of Intel’s effort to rebuild its position in the semiconductor industry.
Israel factory disruption adds to supply constraints
Intel’s Kiryat Gat facility primarily produces data center chips using the company's 10 nanometer manufacturing process. The plant was shut for two weeks following the October explosion, and the company is still determining which wafers can be salvaged for use or sale.
“We’re still assessing all of the wafers to see which ones are usable and which ones aren’t, so we’ll have to see whether there is an impact that stretches beyond that,” Zinsner said.
The company planned to begin ramping up production at the facility by the end of the week. But the possibility of a similar revenue hit in the first quarter means the disruption could continue to affect results even as Intel works to restore output.
The incident comes at a time when the company is trying to increase supply to meet demand for its server processors. CEO Lip-Bu Tan said Intel’s immediate priority was to unlock additional capacity to serve demand for its Xeon family, while strengthening its product portfolio and technology roadmap.
“Our Q3 results demonstrate improving execution, meaningful progress expanding supply and continued advancement of our process technology,” Tan said. “Despite near-term headwinds across the PC industry, demand for our CPUs remains robust, reinforcing our confidence in the long-term growth opportunities for our business.”
Strong earnings fail to ease concerns over the outlook
Intel’s third-quarter results were broadly in line with revenue expectations and exceeded forecasts for adjusted profit. Revenue for the three months ended September 26 reached $16.51 billion, compared with analysts’ estimate of $16.50 billion, while non-GAAP earnings of 52 cents per share topped expectations of 40 cents.
The company reported GAAP earnings per share attributable to Intel of 60 cents, compared with non-GAAP earnings of 52 cents. The two figures reflect different accounting measures and should not be directly compared with analysts’ adjusted earnings estimates.
The weakness was more evident in Intel’s PC chip business. Sales in the division fell 5% to $8.10 billion, missing estimates of $8.98 billion. Intel expects the slowdown to persist, leaving investors looking for signs that demand in the market is stabilizing.
“We delivered another solid quarter. Revenue, gross margin and earnings per share exceeded guidance, including our strongest data center revenue growth in 15 years,” Zinsner said. “Looking ahead, we see the PC slowdown continuing at least through the first half of next year, but we remain optimistic about the opportunities across our broader portfolio.”
