Intel Corporation (INTC) Earnings

Management highlights

### Overall Strategic Progress - Q2 2026 marked the seventh consecutive quarter that Intel exceeded financial guidance, with revenue, gross margin, and EPS all above initial projections. - Demand for Intel products continues to outpace growing supply; industry-wide supply constraints for leading-edge logic, silicon wafers, memory, and substrates are expected to persist for the foreseeable future. - Intel's core competitive advantages are its x86 CPU franchise, advanced packaging technology, and global wafer foundry network, which position it to benefit from surging demand for AI compute infrastructure. - A cultural transformation is underway, leading to faster decision-making, greater efficiency, and closer customer alignment. ### Intel Foundry Updates - Factories across Intel 7, Intel 3, and Intel 18A exceeded internal volume targets in Q2, driven by improving yields and faster cycle times; 18A output rose more than 50% quarter-over-quarter and 25% above internal targets, with yields tracking ahead of expectations. - Risk production of 18AP has begun; 18AP offers improved performance and power efficiency while maintaining design compatibility with 18A, positioning it for external customer adoption. - Intel 14A development is outpacing 18A's development schedule on defect density and transistor performance; PDK 0.5 is complete, and PDK 0.9 remains on track for October 2026. Risk production for internal 14A products is scheduled for H2 2027, with high volume production confirmed for 2028. ### Product Segment Updates - The PC business was renamed Client Computing and Physical AI Group (CCPG) to reflect the growing edge and physical AI opportunity, which management expects to at least match the core PC TAM over time. 18A is now in volume production for multiple CCPG consumer and commercial products, with over 400 18A-based Series 3 designs launched. - DCAI delivered the strongest Q2 year-over-year server growth in Intel history, driven by accelerating AI infrastructure demand; Xeon 6 is one of the fastest ramping products in Intel history, with multiple new long-term customer agreements secured in Q2. - Advanced packaging: Customer interest in EMIB-T remains very high, with a growing backlog; yields and reliability are meeting targets, and Intel is ramping volume to support customer production ramps in 2027. - Design services/ASIC business: Revenue grew nearly 300% year-over-year, with the recent Fortinet security processor collaboration marking a key milestone for Intel's purpose-built silicon strategy.

Guidance

- Q3 2026 non-GAAP revenue is guided to a range of $15.8 billion to $16.8 billion, with a midpoint of $16.3 billion. Non-GAAP gross margin is projected at 42%, non-GAAP EPS at 38 cents, and the effective tax rate at 11%. - 2026 full-year non-GAAP operating expenses are projected to be held to approximately $16.5 billion, maintaining prior guidance. - Capital expenditure guidance for 2026 was raised to more than $20 billion, a significant increase from the start-of-year outlook. 2027 capital expenditures are projected to be meaningfully higher than 2026 levels, with the vast majority of spending focused on Intel's U.S. manufacturing network. - Full-year 2026 PC industry demand is expected to be down low double digits year-over-year, impacted by rising memory prices and supply constraints, in line with industry consensus. - Server CPU industry demand is expected to deliver strong double-digit unit growth in both 2026 and 2027, with momentum extending into 2028. - Supply growth is expected to be weighted toward the end of Q3 2026 and into Q4 2026, particularly for server products.

Segment performance

1. Client Computing and Physical AI Group (CCPG): Revenue was $8.9 billion, up 15% sequentially. AIPC revenue grew 26% sequentially, representing 67% of CCPG revenue mix, while edge deployments account for ~10% of CCPG revenue. Operating profit was $2.3 billion, equal to 26% of segment revenue. 2. Data Center and AI Group (DCAI): Revenue was $6.3 billion, up 24% sequentially and 59% year-over-year. Purpose-built silicon revenue within DCAI grew 20% sequentially and nearly tripled year-over-year. Operating profit was $2.5 billion, equal to 40% of segment revenue. 3. Intel Foundry: Revenue was $5.8 billion, up 6% sequentially, with external foundry revenue hitting $293 million in the quarter. Operating loss was $2.1 billion, an improvement of $348 million quarter-over-quarter. Combined, Intel's AI-driven businesses grew over 70% year-over-year and contributed approximately 70% of total company revenue in Q2 2026.

Risks & headwinds

- Industry-wide supply constraints across leading-edge wafers, memory, and substrates remain a persistent challenge, limiting Intel's ability to meet customer demand even as it increases manufacturing capacity. Back-end supply chain components, particularly substrates, are a current choke point for production. - While Intel is catching up competitively on CPU architecture to rival AMD, it still lags in some areas, with share gains dependent on continued successful execution of its product roadmap. - Large-scale capital expenditure for new manufacturing capacity creates near-term cash outflow, and returns on investment are only realized over the multi-year lifetime of new process nodes. - Uncertainty around the timing and magnitude of U.S. investment tax credit (AMIC) returns creates timing lags for cash inflows offsetting capital spending.

Analyst Q&A

• Q: The $3 billion 2026 CapEx increase and larger 2027 increase — is this driven by hard 14A/18AP foundry customer orders, and how much is allocated to packaging versus front-end manufacturing? /

  A: The increased CapEx is broad-based, covering both front-end wafer manufacturing and advanced packaging for EMIB-T, but is skewed to more expensive front-end capacity. The investment signals management confidence in demand across all business units, including long-term customer agreements already secured. Intel remains disciplined, only committing to CapEx when it expects strong returns, and benefits from longer process node lifetimes that boost long-term returns.

• Q: How does Intel expect server market share to trend, especially against AMD and ARM, and can Intel's foundry business help gain share? /

  A: The primary near-term challenge is growing supply to meet existing strong demand, rather than winning share. Intel has a strong product roadmap that includes Clearwater Forest, Diamond Rapid, and Coral Rapid, and is aggressively working to improve single-thread and multi-thread performance to catch up to competitors where it still lags. ARM is a strategic partner and potential customer for Intel Foundry rather than just a competitor, with collaboration on both IP and ASIC manufacturing.

• Q: Client revenue was stronger than expected in Q2 — what drove this, and what is the outlook for client in H2 2026? /

  A: Stronger-than-expected Q2 client revenue was driven largely by higher ASPs, from a mix shift toward higher-end AIPC products and selective price increases to offset cost inflation. While the overall PC market is expected to be soft in H2 due to memory cost and availability issues, CCPG revenue will be roughly flattish QoQ in Q3, with growth in edge AI offsetting softness in core PCs. Intel can pivot excess client production capacity to server to meet unmet demand in that segment.

• Q: When can external foundry customers expect public customer announcements, and how much of the 2027 CapEx increase is for external customers versus internal capacity? /

  A: 18AP is on track to be ready by the end of 2026, and 14A PDK 0.9 will be delivered in October 2026, with customer engagement already very positive. Management will only commit to CapEx after validating yield, performance, and customer demand, so the increased CapEx signals strong customer traction. Most 2026 CapEx growth is for tooling for existing high-volume nodes (Intel 3, 18A, 18AP); the exact 2027 CapEx number will be released early next year, and capacity is built holistically to meet both internal and external demand.

• Q: What is the growth and margin outlook for Intel's ASIC/design services business? /

  A: The ASIC market is a $100 billion total opportunity, and Intel is well-positioned with its unique combination of design expertise, IP portfolio, advanced packaging, and leading-edge process technology. The business is currently approaching a $2 billion annual run rate, up from $1.2 billion last quarter, and is expected to reach a $4 billion run rate in the near future. The recent Fortinet collaboration is a key example of the opportunity in this segment.