Intel (INTC.US) reported better-than-expected results for its fiscal fourth quarter ended December 27, 2025, after the market close on January 22. However, its guidance for the current quarter was significantly below expectations, causing the stock price to plummet by 11.15% in after-hours trading.
The December quarter performance exceeded expectations. Intel's fiscal Q4 revenue decreased by 4.11% year-over-year to $13.674 billion, surpassing market expectations of $13.4 billion. Management indicated that all business segments achieved strong growth, benefiting from AI infrastructure build-out—revenue from AI PCs, traditional servers, and networking businesses all recorded double-digit growth both sequentially and year-over-year. However, it was noted that while AI PC and networking businesses grew robustly, their contributions remain relatively small. Declines in its traditional businesses likely offset the positive impact from these growth areas. The Client Computing Group (CCG), which constitutes the majority of Intel's revenue, saw quarterly revenue fall by 7% year-over-year, counteracting the positive effects of revenue growth in the Data Center and AI (DCAI) segment and the foundry business, which appears to be the primary reason for the quarterly revenue decline.
Non-GAAP gross margin contracted by 420 basis points year-over-year to 37.9%, but was approximately 140 basis points higher than management's prior forecast. This was mainly due to revenue growth and lower inventory reserves, partially offset by a higher mix of outsourced client products and the early ramp-up of Intel 18A capacity to support the launch of the Core Ultra 3rd Gen series (codenamed Panther Lake). Driven by revenue growth, improved gross margin, and continued expense control, non-GAAP earnings per share for Q4 reached $0.15, beating the market consensus of $0.08.
Net cash provided by operating activities in Q4 increased by 35.48% year-over-year to $4.288 billion. Total capital expenditures were $4.021 billion. Adjusted free cash flow turned positive, reaching $2.222 billion, compared to negative $1.503 billion in the same period last year.
The company's management disclosed that Nvidia's (NVDA.US) $5 billion investment was completed as expected in the fourth quarter.
The outlook for the first fiscal quarter is not ideal. However, the guidance provided by Intel for the upcoming quarter was disappointing. During the earnings call, management revealed that entering 2026, its buffer inventory has been depleted. Furthermore, the wafer capacity reallocation towards servers that began in the third fiscal quarter will only yield output by the end of the first quarter of 2026. Consequently, internal supply is expected to face significant constraints during Q1.
Management forecasts Q1 revenue to be between $11.7 billion and $12.7 billion, with a midpoint of $12.2 billion falling below the market expectation of $12.51 billion. Non-GAAP gross margin is projected to decline to approximately 34.5%, primarily due to lower revenue, increased 18A production volume, and product mix changes. Non-GAAP diluted earnings per share are anticipated to be only around breakeven, whereas the market expected a profit of $0.05 per share.
Management indicated it will continue to prioritize allocating internal supply to servers and high-margin markets. Revenue decline for the Client Computing Group (CCG) is expected to be more pronounced than for the Data Center and AI (DCAI) segment. Intel Foundry Services revenue is projected to achieve sequential double-digit growth, benefiting from the ongoing transition to EUV wafers and Intel 18A pricing.
The company expects available supply from its factory network to improve quarter-by-quarter starting from the second quarter. DCAI is anticipated to have a year of strong growth, while client CPU inventories remain low.
However, management also noted that in recent months, strong demand supporting the rapid expansion of AI infrastructure has led to industry-wide supply pressures for key components like DRAM, NAND, and substrates, driving up prices. This could potentially limit Intel's revenue opportunities this year.
Regarding capital expenditure for 2026, management stated it is striving to balance capital efficiency with responsiveness to market demand. It adjusted its previous forecast of a decline in capex to now anticipate it being flat or down slightly. Furthermore, these expenditures are expected to be more concentrated in the first half of the year, with 2026 capex intended to support demand in 2027 and beyond.
Additionally, Intel expects to achieve positive adjusted free cash flow for the full year.
Intel's product roadmap. Regarding future product plans, Chen Liwu stated that the first products based on Intel 18A have begun shipping, with yields steadily improving as production ramps up. Intel 18AP is progressing well, with collaboration ongoing with both internal and external customers on this node, and version 1.0 of the process design kit (PDK) was delivered late last year. Intel 14A development is on track, with significant steps taken to streamline processes and accelerate performance and yield improvements. A comprehensive IP portfolio is being built on Intel 14A, with continuous enhancement of design support solutions. Importantly, PDK collaboration with potential external customers on Intel 14A is underway, with customer supplier selections expected to be finalized from the second half of this year through the first half of 2027.
Chen Liwu also mentioned that Intel holds strong differentiating advantages in advanced packaging, particularly EMIB and EMIB-T. The company is focusing on improving quality and yields to support customer demand for production ramps starting in the second half of 2026.
Conclusion. Although Intel's guidance for the first quarter of fiscal 2026 fell significantly short of expectations, coupled with short-term pressures like internal supply constraints and rising key component costs, leading to a sharp after-hours stock decline and clear near-term performance pressure, the company retains multiple long-term prospects. AI infrastructure-related businesses have already demonstrated strong growth momentum. Intel's 18A and 14A processes, along with advanced packaging technologies, are steadily advancing. The foundry services business is poised for continued volume growth, and factory supply is expected to improve sequentially from Q2 2026, with the Data Center and AI business potentially entering a strong growth year.
More importantly, Intel has secured the finalized support of Nvidia's $5 billion strategic investment. Combined with capital and policy backing from SoftBank and the US government, and even market rumors of potential investment from Apple (AAPL.US), multiple forces could provide solid support for its advanced process R&D, capacity expansion, and AI ecosystem development. Recently, securing the massive framework order under the US SHIELD program injects a "ballast stone" for highly certain revenue and profit growth in the coming years.
However, yield uncertainty remains a core concern. Although Intel 18A has begun shipping with yields improving during the ramp-up, initial mass production yields are still below ideal levels, directly impacting the current quarter's gross margin and supply capability. If the subsequent ramp-up falls short of expectations, it could further constrain the volume production of advanced process products and the expansion of the foundry business.
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