Intel shares tumble after hours, hit by chip supply constraints, big cash burn 

By Anhata Rooprai and Max A. Cherney

Oct 29 (Reuters) - Intel shares plunged 23% after hours on Thursday after the chip maker warned it would burn cash this year due to the faltering PC market, bottlenecks in manufacturing and heavy spending on expanding production.

Like many other major tech companies, Intel has been pouring money into manufacturing, but has run into supply disruptions that have capped its ability to capitalize on growing demand for data-center chips. Compounding that pressure, PC costs are on the rise due to the surge in memory prices, which has weighed on demand.

That weak demand could persist through the first half of 2027, Intel warned on Thursday, and also forecast December-quarter revenue below market expectations.

Intel expects the deadly October explosion at its Israel plant to erase roughly $600 million in revenue over two quarters and reduce supplies of AI server chips to cloud customers, Intel told Reuters in an interview.

"I'm disappointed that we were not able to meet strong customer demand in this quarter," Intel CEO Lip-Bu Tan said on a conference call with analysts. "We face near-term challenges, including manufacturing supply shortages, the unprecedented memory crunch, and the resulting softness in PC demand."

The gloomy outlook reverberated across the chip sector. Nvidia, Broadcom, AMD, Micron, Qualcomm and Arm Holdings' US-listed shares fell between 1% and 6% in extended trading.

If Intel's stock were to lose 23% in Friday's regular session, it would shed more than $112 billion in market value. Intel's stock has more than doubled this year.

"I think we entered earnings season with the market in a pessimistic mood. No result is good enough, and bad results receive extra punishment," said Seaport Research Partners analyst Jay Goldberg.

The company expects PC chip revenue to decline in the mid-20% range for its fourth quarter, after a 5% drop to $8.10 billion in the third quarter.

Intel expects fourth-quarter revenue between $15 billion and $16 billion, below analysts' average estimate of $17.07 billion, according to LSEG data. Adjusted profit is expected to come in at 25 cents per share, trailing estimates of 43 cents.

FACTORY EXPLOSION SQUEEZES CAPACITY

The October explosion at Intel's Kiryat Gat, Israel, factory killed two and seriously injured one, according to media reports. Finance chief David Zinsner said Intel planned to ramp up production at the facility by the end of this week after a two-week shutdown.

The Kiryat Gat factory largely produces data center chips using the company's 10 nanometer manufacturing process.

Intel lowered its fourth-quarter revenue outlook by roughly $300 million and cut its gross margin outlook by about 200 basis points, Zinsner told Reuters. He expects a similar hit in the first quarter.

Intel is in the process of determining which wafers are salvageable for use and sale after the blast. "We'll have to see whether there is an impact that stretches beyond that," Zinsner said.

"The explosion at Kiryat Gat, one of Intel’s major manufacturing sites, is unfortunate and brought down Intel’s capacity," said Hendi Susanto, portfolio manager at Gabelli Funds.

TURNAROUND PLANS

Tan has been leading the company's turnaround after it fell behind Nvidia, whose graphics processors dominate the AI boom. Intel's contract manufacturing, or foundry, business is a key part of his strategy.

On the conference call with investors, Zinsner said Intel does not expect to have positive cash flow this year as expands manufacturing capacity. He said the company remains on track to spend $20 billion in capital this year and that spending will rise sharply in 2027 as Intel secures more chipmaking tools.

Zinsner also said that the costs of 18A, the chipmaking technology used to make the company's "Panther Lake" chips, have fallen 40% since the first quarter, which should help the company's margins longer term.

For the third quarter ended September 26, revenue rose 21% to $16.51 billion, in line with estimates. Adjusted profit came in at 52 cents per share, beating estimates of 40 cents.

(Reporting by Anhata Rooprai in Bengaluru and Stephen Nellis and Max Cherney in San Francisco; Editing by Diti Pujara, Jonathan Spicer, David Gaffen and David Gregorio)