FROM THE HEART OF WHERE INNOVATION, MONEY, AND POWER COLLIDE, FROM SILICON VALLEY AND BEYOND, THIS IS BLOOMBERG TECHNOLOGY WITH CAROLINE HYDE AND ED LUDLOW.
ED: Live from San Francisco to TV and radio audiences around the world, welcome to a special edition of Bloomberg Technology. I’m Ed Ludlow. In a few moments, CEO Pat Gelsinger will join us for a live interview following the latest earnings report. The company is giving a fourth-quarter revenue forecast slightly above estimates, which is spiking optimism that Intel is capable of reclaiming lost market share in key categories. The shares are really surging.
It’s important to note that two other giants of the technology world also reported numbers this evening. Apple, the world’s most valuable company, is down two percentage points. It grew in every geography around the world apart from Greater China. iPhone revenue overall reached a strong forecast for the final four months of the year. There’s a solid indication of Amazon regaining momentum with AWS returning to growth.
We will check in on all three names in the next 30 minutes, but now the focus is on Intel. It had a painful third quarter, and it’s giving us a signal about what might come next. First, we will go to Bloomberg Senior Executive Editor Tom Giles, who leads technology coverage in the newsroom.
ED: Slightly is the key here. A lot of what they did in the most recent quarter involved cutting costs, expenses, and headcount. They took a step back on investor payouts. Much of it is about retrenching. They did give a forecast for the fourth quarter that slightly exceeded analyst expectations, which was enough to get the stock moving. It is definitely up in after-hours trading. I look at the report and see they are not out of the woods yet by any stretch of the imagination. Their orders for AI chips still lack significant momentum, and they won’t meet the $500 million threshold that they had talked about.
We are still wondering whether there will be interest from outside companies after the election. Bloomberg has reported on Qualcomm’s potential interest in an Intel deal, but it seems they will put that off until after the election, so we may not see much movement until after the new year. Investors are breathing a sigh of relief, but Gelsinger still has a lot of expectations to live up to.
ED: I want to bring in Bloomberg's Ian King, who has led semiconductor coverage in the Bloomberg newsroom since 1998. For that whole time, Intel has led in certain products, particularly chips that go into PCs and data centers. Their third quarter was painful, with billions of dollars in impairment charges and headcount reductions. Can you explain why it was so important for the company to take those actions?
IAN: Pat Gelsinger spelled it out. He said, “We are resizing the company for the size of revenue we expect going forward.” He indicated they expect growth of 3% to 5%, and if they push it, maybe they will reach the 7% range. This is a long way off from Intel’s previous performance, particularly in the AI chip market.
ED: You spoke to Pat Gelsinger on the phone briefly. Their business is split into two: chips for PCs and data centers, and manufacturing. Gelsinger explained the plan to run them as distinct divisions but still under one company.
IAN: He talked about the benefits of splitting them up while still keeping them together. He was asked about this on the call, and people still struggle with it. If you are splitting them up, why not go all the way and split the company? He insisted they need to manage their overall finances, and the majority of the work done in those factories will be their chips for the next couple of years.
ED: Those are the numbers Intel posted. Let’s get a reaction from the investment community. JoAnne Feeney is a partner and portfolio manager at Advisors Capital Management, currently with no exposure to Intel, but someone who has covered semiconductors for many years at multiple firms. What is your reaction to the Intel print and what they told us about their progress?
JOANNE: They made a lot of progress. It’s an important step forward. They had a lot of cost-cutting to do, and it seems like they got a lot done last quarter. We are seeing a big charge on the diluted EPS. However, they have a long way to go because they are taking a huge hit on their gross margin by outsourcing. That reflects a lack of execution in the past on the manufacturing side. It is not just coming to an end. We did not get good news about that this quarter. In fact, it is really not going to play through until 2026 when they ramp Panther Lake in real volume.
Even Pat Gelsinger said on the call that 70% will be in-house, but 30% will not. I think that is a smart business decision; they have to be a reliable provider of the chips. If there’s any hiccup in the yields, they will get on Panther Lake like they had better have. They have gone from 40% to now underperforming. That is because they have not executed. I have always said if someone can right the ship, it is Pat Gelsinger, a former Intel guy back at the helm. He and Dave Kinzer have made incredible progress this quarter.
JOANNE: They are a distant follower. It will take them a long time to make inroads. It’s not just NVIDIA and AMD with new products; it’s custom silicon coming out of the cloud providers themselves, like Google and OpenAI working with Broadcom. This reflects the different opportunities Intel has. It’s not just AI accelerators; it’s that they have lost so much market share in servers to AMD. They used to be at 97%.
ED: JoAnne Feeney, stay with us. I want to go back to Ian King. Historically, Intel was the leader in product categories and margins. It was a company with margins of 60% or above, and that is not the case anymore. Why?
IAN: Historically, their massive advantage was having the best factories in the industry, which cost tens of billions of dollars to build. If they are good and give you better products, that’s an asset. Right now, it’s the reverse; they are not the best, and that’s laying on the margins.
IAN: There’s this foundry business, and part of it is serving Intel, their own biggest customer. They’ve named impressive people to lead the manufacturing of chips for other companies. Now, does there seem to be a timeline building of when that might happen?
IAN: The optimism is that now we have made our factories great again. Now they are good, and it will help our products attract outside money. The analysts are saying, “When?” What’s happening there? As JoAnne said, they are outsourcing a big chunk of their best stuff, which has tremendous margins, and there’s a negative impact if you have factories and you aren’t making your best stuff. That’s not how you want to be in the industry.
ED: When I moved to California six years ago, Intel was part of the lore, the history of Silicon Valley. They made very painful decisions. When I posted on social media that Pat Gelsinger was doing this special program, many voiced their support for him. What would your question be for him?
IAN: How will you bring that gross margin up? How will you convince potential foundry customers they will get priority in wafer starts when they need them? That has always been the challenge in years past when Intel has talked about starting a foundry business. The concern among potential customers was, “How do we know you will get the wafer starts you promised? How do we know you won’t prioritize your own products?” Secondly, do they have the extensive libraries they need to build chips for other companies? That is a set of libraries that have obviously built up over many, many years and decades at TSMC and Samsung, but it’s new for Intel. Can they execute to build other companies' products as well as they do for their own?
ED: JoAnne Feeney of Advisors Capital Management and Bloomberg’s Ian King, thank you. We are joined by Pat Gelsinger live on Bloomberg Television and radio. Pat, thank you for your time. We were just talking about how you made painful decisions that showed up as impairment charges and reflected on the bottom line. Can I ask if that’s it now? Are the actions taken, and do you have a clear line of sight on what you want to do, or will there be more restructuring to come?
PAT: We worked very hard this quarter to get this done. The people actions and the restructuring charges were largely finished this quarter. It was a challenging quarter that way. But to deliver better-than-expected results—if we eliminate one-time charges and take guidance up for Q4—I’m proud of our team for being able to do
FROM THE HEART OF WHERE INNOVATION, MONEY, AND POWER COLLIDE, FROM SILICON VALLEY AND BEYOND, THIS IS BLOOMBERG TECHNOLOGY WITH CAROLINE HYDE AND ED LUDLOW.
ED: Live from San Francisco to TV and radio audiences around the world, welcome to a special edition of Bloomberg Technology. I’m Ed Ludlow. In a few moments, CEO Pat Gelsinger will join us for a live interview following the latest earnings report. The company is giving a fourth-quarter revenue forecast slightly above estimates, which is spiking optimism that Intel is capable of reclaiming lost market share in key categories. The shares are really surging.
It’s important to note that two other giants of the technology world also reported numbers this evening. Apple, the world’s most valuable company, is down two percentage points. It grew in every geography around the world apart from Greater China. iPhone revenue overall reached a strong forecast for the final four months of the year. There’s a solid indication of Amazon regaining momentum with AWS returning to growth.
We will check in on all three names in the next 30 minutes, but now the focus is on Intel. It had a painful third quarter, and it’s giving us a signal about what might come next. First, we will go to Bloomberg Senior Executive Editor Tom Giles, who leads technology coverage in the newsroom.
TOM: Where to start? Intel has moved on from a painful third quarter and is trying to tell us it has regained footing going forward.
ED: Slightly is the key here. A lot of what they did in the most recent quarter involved cutting costs, expenses, and headcount. They took a step back on investor payouts. Much of it is about retrenching. They did give a forecast for the fourth quarter that slightly exceeded analyst expectations, which was enough to get the stock moving. It is definitely up in after-hours trading. I look at the report and see they are not out of the woods yet by any stretch of the imagination. Their orders for AI chips still lack significant momentum, and they won’t meet the $500 million threshold that they had talked about.
We are still wondering whether there will be interest from outside companies after the election. Bloomberg has reported on Qualcomm’s potential interest in an Intel deal, but it seems they will put that off until after the election, so we may not see much movement until after the new year. Investors are breathing a sigh of relief, but Gelsinger still has a lot of expectations to live up to.
ED: I want to bring in Bloomberg's Ian King, who has led semiconductor coverage in the Bloomberg newsroom since 1998. For that whole time, Intel has led in certain products, particularly chips that go into PCs and data centers. Their third quarter was painful, with billions of dollars in impairment charges and headcount reductions. Can you explain why it was so important for the company to take those actions?
IAN: Pat Gelsinger spelled it out. He said, “We are resizing the company for the size of revenue we expect going forward.” He indicated they expect growth of 3% to 5%, and if they push it, maybe they will reach the 7% range. This is a long way off from Intel’s previous performance, particularly in the AI chip market.
ED: You spoke to Pat Gelsinger on the phone briefly. Their business is split into two: chips for PCs and data centers, and manufacturing. Gelsinger explained the plan to run them as distinct divisions but still under one company.
IAN: He talked about the benefits of splitting them up while still keeping them together. He was asked about this on the call, and people still struggle with it. If you are splitting them up, why not go all the way and split the company? He insisted they need to manage their overall finances, and the majority of the work done in those factories will be their chips for the next couple of years.
ED: Those are the numbers Intel posted. Let’s get a reaction from the investment community. JoAnne Feeney is a partner and portfolio manager at Advisors Capital Management, currently with no exposure to Intel, but someone who has covered semiconductors for many years at multiple firms. What is your reaction to the Intel print and what they told us about their progress?
JOANNE: They made a lot of progress. It’s an important step forward. They had a lot of cost-cutting to do, and it seems like they got a lot done last quarter. We are seeing a big charge on the diluted EPS. However, they have a long way to go because they are taking a huge hit on their gross margin by outsourcing. That reflects a lack of execution in the past on the manufacturing side. It is not just coming to an end. We did not get good news about that this quarter. In fact, it is really not going to play through until 2026 when they ramp Panther Lake in real volume.
Even Pat Gelsinger said on the call that 70% will be in-house, but 30% will not. I think that is a smart business decision; they have to be a reliable provider of the chips. If there’s any hiccup in the yields, they will get on Panther Lake like they had better have. They have gone from 40% to now underperforming. That is because they have not executed. I have always said if someone can right the ship, it is Pat Gelsinger, a former Intel guy back at the helm. He and Dave Kinzer have made incredible progress this quarter.
JOANNE: They are a distant follower. It will take them a long time to make inroads. It’s not just NVIDIA and AMD with new products; it’s custom silicon coming out of the cloud providers themselves, like Google and OpenAI working with Broadcom. This reflects the different opportunities Intel has. It’s not just AI accelerators; it’s that they have lost so much market share in servers to AMD. They used to be at 97%.
ED: JoAnne Feeney, stay with us. I want to go back to Ian King. Historically, Intel was the leader in product categories and margins. It was a company with margins of 60% or above, and that is not the case anymore. Why?
IAN: Historically, their massive advantage was having the best factories in the industry, which cost tens of billions of dollars to build. If they are good and give you better products, that’s an asset. Right now, it’s the reverse; they are not the best, and that’s laying on the margins.
ED: What were the answers?
IAN: Two years.
ED: What do you mean?
IAN: There’s this foundry business, and part of it is serving Intel, their own biggest customer. They’ve named impressive people to lead the manufacturing of chips for other companies. Now, does there seem to be a timeline building of when that might happen?
IAN: The optimism is that now we have made our factories great again. Now they are good, and it will help our products attract outside money. The analysts are saying, “When?” What’s happening there? As JoAnne said, they are outsourcing a big chunk of their best stuff, which has tremendous margins, and there’s a negative impact if you have factories and you aren’t making your best stuff. That’s not how you want to be in the industry.
ED: When I moved to California six years ago, Intel was part of the lore, the history of Silicon Valley. They made very painful decisions. When I posted on social media that Pat Gelsinger was doing this special program, many voiced their support for him. What would your question be for him?
IAN: How will you bring that gross margin up? How will you convince potential foundry customers they will get priority in wafer starts when they need them? That has always been the challenge in years past when Intel has talked about starting a foundry business. The concern among potential customers was, “How do we know you will get the wafer starts you promised? How do we know you won’t prioritize your own products?” Secondly, do they have the extensive libraries they need to build chips for other companies? That is a set of libraries that have obviously built up over many, many years and decades at TSMC and Samsung, but it’s new for Intel. Can they execute to build other companies' products as well as they do for their own?
ED: JoAnne Feeney of Advisors Capital Management and Bloomberg’s Ian King, thank you. We are joined by Pat Gelsinger live on Bloomberg Television and radio. Pat, thank you for your time. We were just talking about how you made painful decisions that showed up as impairment charges and reflected on the bottom line. Can I ask if that’s it now? Are the actions taken, and do you have a clear line of sight on what you want to do, or will there be more restructuring to come?
PAT: We worked very hard this quarter to get this done. The people actions and the restructuring charges were largely finished this quarter. It was a challenging quarter that way. But to deliver better-than-expected results—if we eliminate one-time charges and take guidance up for Q4—I’m proud of our team for being able to do