Intel's data center unit now earns more than its PC unit; fourth-quarter outlook is lower

Intel (Nasdaq: INTC) said its Data Center and AI unit earned $3.0 billion in operating income in the third quarter, more than the $2.3 billion earned by the Client Computing and Physical AI Group that sells PC chips, according to the company's third-quarter results release. The company also guided to lower revenue and a lower gross margin for the fourth quarter.

What happened

Total revenue was $16.5 billion, up 21% from $13.7 billion in the third quarter of 2025. Data Center and AI (DCAI) revenue rose 78% to $7.3 billion, while Client Computing and Physical AI Group (CCPG) revenue fell 5% to $8.1 billion. Intel Foundry, the contract manufacturing unit, reported $6.7 billion of revenue, up 58%, and an operating loss of $1.9 billion, compared with a loss of $2.3 billion a year earlier. Segment revenue includes sales between Intel's own units, which the company eliminates in the consolidated total.

Operating income was $2.5 billion, against $0.7 billion a year earlier. Gross margin was 43.0% on a GAAP basis and 44.1% excluding certain items (non-GAAP), up from 38.2% and 40.0%. Earnings per share attributable to Intel were $0.60 on a GAAP basis, down from $0.90, and $0.52 non-GAAP, up from $0.23.

David Zinsner, Intel's chief financial officer, said in the release that revenue, gross margin and earnings per share exceeded guidance, "including our strongest data center revenue growth in 15 years." Lip-Bu Tan, Intel's chief executive, said: "Our immediate priority is to unlock additional supply to meet extraordinary demand for our Xeon family." Xeon is Intel's server processor line.

Why it matters

The two product units have swapped places in the profit table. DCAI earned $3.0 billion in operating income, up from $1.0 billion a year earlier, while CCPG earned $2.3 billion, down from $2.7 billion. DCAI was 47.5% of Intel Products revenue in the quarter, compared with 32.5% in the third quarter of 2025 (computed from the segment table).

Zinsner said the PC market remains weak: "we see the PC slowdown continuing at least through the first half of next year." Tan said demand for Intel's CPUs remains robust despite what he called near-term headwinds across the PC industry.

The company's share count and balance sheet have changed as well. Intel completed a $23 billion public equity offering, which the cash flow statement shows as $22.6 billion of net proceeds in the first nine months of 2026. Shares outstanding were 5,310 million on September 26, against 4,994 million on December 27, 2025, an increase of 6.3% (computed). For the nine months, Intel reported a net loss of $11.6 billion, compared with net income of $0.4 billion a year earlier; the cash flow statement shows a $12.6 billion non-cash loss from marking to market the Escrowed Shares tied to Intel's agreement with the U.S. Department of Commerce.

What to watch

For the fourth quarter, Intel guided to revenue of $15.0 billion to $16.0 billion. The midpoint, $15.5 billion, is 6.1% below the third-quarter figure (computed). It guided to a GAAP gross margin of 37.1% and a non-GAAP gross margin of 38.0%, compared with 44.1% non-GAAP in the third quarter, a difference of 6.1 percentage points (computed). Guided earnings per share are $0.10 GAAP and $0.25 non-GAAP. The release does not give a reason for the lower margin outlook.

Zinsner said Intel will "continue making disciplined investments in capacity and working capital to increase supply and support future growth." The release lists a multiyear collaboration with Oracle to expand Xeon-based computing on Oracle Cloud Infrastructure and the October release of the Intel 14A 0.9 process design kit among the company's recent steps.