Intel Posts Earnings Beat On Record $16.6B Loss, Shares Spike

Shares of Intel spiked in aftermarket trading hours last night and remains up (by more than 5.5%) early this morning, as investors are focused on the future and not the $16.6 billion loss that Intel reported for its third quarter of 2024, its biggest quarterly loss ever. The reason? A loss wasn't unexpected on the heels of Intel deciding to invest in fab expansions, and the company's revenue actually came out ahead of Intel's prior midpoint guidance. Let's dig in.

Intel posted third-quarter revenue of $13.3 billion, which is down 6% year-over-year but higher than what analysts had expected. The chip maker got a boost from its Data Center and AI (DCAI) division, which generated $3.3 billion in revenue for a 9% year-over-year increase. Likewise, it saw a gain in its Network and Edge (NEX) division, which rose 4% year-over-year to $1.5 billion. Meanwhile, Intel's Client Computing Group (CCG) posted a 7% loss to $7.3 billion.

"Our Q3 results underscore the solid progress we are making against the plan we outlined last quarter to reduce costs, simplify our portfolio, and improve organizational efficiency. We delivered revenue above the midpoint of our guidance, and are acting with urgency to position the business for sustainable value creation moving forward," said Pat Gelsinger, Intel CEO. "The momentum we are building across our product portfolio to maximize the value of our x86 franchise, combined with the strong interest Intel 18A is attracting from foundry customers, reflects the impact of our actions and the opportunities ahead."

Intel CFO David Zinsner offered some additional insight into the quarterly loss. He noted, "Restructuring charges meaningfully impacted Q3 profitability as we took important steps towards our cost reduction goals."

He's referring to Intel's $10 billion cost reduction plan as Gelsinger and the gang attempt to right the ship and navigate towards becoming a "leaner, faster, and more agile company," to borrow words from the CEO. The aggressive plan was put into motion last August amid dwindling profits.

One thing to note is that Gelsinger inherited a company in need of a transformation, as the previous regime had made several missteps that allowed AMD to catch up in process technology. It was never going to be a short-term turnaround, though there is optimism that Intel's 18A node—Intel's fifth node in five years—will prove to be a catalyst to bringing in some major revenue gains next year. According to Intel, 18A "is healthy and continues to progress well," with Panther Lake (client) and Clearwater Forest (servers) both meeting early 18A milestones ahead of launching in 2025.

In addition to $2.8 billion in restructuring charges for Q3, Intel said its latest quarterly results were materially impacted by $3.1 billion in charges related to cost of sales and depreciation for certain manufacturing assets, $2.9 billion in non-cash charges associated with the impairment of goodwill for certain reporting units (namely, its Mobileye reporting unit), and $9.9 billion related to the establishment of a valuation allowance against US deferred tax assets.

The restructuring is an ongoing process that is expected to take the better part of next year to complete. Intel is already making progress, but in the meantime, more losses are on the horizon. To that end, Zinsner noted during an earnings call that the $5.8 billion Foundry operating loss was "down sequentially and materially driven" by $3 billion impairment charges.

"We expect losses to continue at approximately the same rate in Q4, minus this impairment charge. Next year, as we move to nodes with a better cost structure and realize the savings associated with the restructuring actions, we expect operating losses to improve significantly," Zinsner said.

Looking ahead to Q4, Intel anticipates revenue settling in between $13.3 billion and $14.3 billion.