$INTC · Jose Najarro Stocks · 2026-10-31

Intel recently announced its earnings, and unfortunately, its fourth-quarter guidance came in much lower than expected, causing the stock to drop by about 30% the following day.

We continue to hear stories about shortages of central processing units, yet Intel has provided guidance that falls far short of expectations.

For the third quarter, on a year-over-year basis, they saw tremendous growth in the field of data centers. The data center market grew by 78% year-on-year. Unfortunately, we are seeing weaknesses in the area of customer computing.

The customer computing sector actually declined by 5% year-on-year.

For example, for Intel, third-quarter data center revenue was $7.3 billion. Customer revenues reached 8.1 billion. Total revenue reached $16.5 billion. So, about a billion dollars in other areas, right?

In other respects, about one billion dollars. But essentially, the customer segment accounts for slightly more than 50% of our revenue. The data center sector accounts for approximately 40%.

Therefore, this is extremely important because if you see a slowdown in one of them, it could really affect the overall business, especially in the customer segment. And that's exactly what's happening here.

For this last quarter, we saw those strong numbers in the data centers, but when the company provided its guidance, expectations were between $15 billion and $16 billion. That would be a consecutive decline.

Analysts' expectations were also trending towards $16.8 billion. They have failed spectacularly in their fourth-quarter guidance.

And once again, the market is asking: "Hey, if there's a shortage of server CPUs, why aren't you seeing successive improvements?" And most importantly, how do you fail to meet expectations?"

The stock has been severely punished. We've also seen a decline in earnings per share and gross profit margins. Regardless, the question is: "Something suspicious is happening in the server CPU space."

"Let me sell everything. I'd rather act now and ask questions later.

Intel, when we look at the server space, is still expecting growth for the fourth quarter. The fourth quarter is expected to grow by close to double digits consecutively in data centers.

Right, that's huge. That's huge considering the $7.3 billion base. That puts that part of the business well over $8 billion.

Now, the downside is that there are very strong headwinds in the consumer segment. Fortunately, we've been talking about this on this channel, that memory prices are going to create strong headwinds in the consumer segment.

We talked about this last December. And we're finally seeing that unfold now.

But if you're expecting a decline of more than 20% in a business that represents more than or close to 50% of your business, then you're definitely going to take a big hit and miss expectations, especially when the market wasn't pricing in that kind of decline.

So, a 20% decline in the third-quarter base of around $8 billion means a loss of at least..." $1.6 billion. So, your data center is expected to grow well, but you'll see a bigger impact on revenue due to customer computing activity.

And that customer computing market far surpasses the server market.

What are some of the problems Intel is facing, and why can't they meet market demand? One of the main issues is that their chip production still doesn't cover current demand. This is due to two reasons.

While they are making improvements to their technology, there's still a lot of room for improvement, right? Also, they don't have sufficient supply lines because historically they've had to dismantle.

Their supply chains are for specific products, then for consumer products, and so on, right? So, their supply chain isn't just for server processors; it's focused on the rest of the market.

Therefore, if they need to shift a supply chain that was focused on the consumer sector, it takes time.

Another issue is the actual materials, like the substrates used in the advanced packaging required for many of these server processors, which are in huge shortage. Finally, they have Fab 28, a facility in Israel that experienced a disruption.

This disruption is causing a short-term impact on the supply of older-technology server processors.

Some might ask, "José, that's old technology." Why does this matter? "Because, given the current shortage, you can sell server processors with older technologies, and the market will buy them all.

Unfortunately, for this factory, Fab 28, almost all of its production is 10nm, as I mentioned, but it's impacting the company's revenue by about $300 million. It's also affecting gross profit margins by about two percentage points.

And this is happening in the fourth quarter alone. They even believe the initial impact in the first quarter will be similar.

Now, the market is also punishing Intel. It's like, 'Hey, these are just preliminary estimates.'" Could the situation get any worse than this? "And what will happen if the situation gets worse?

What will happen if it continues beyond the first quarter? What will happen if it extends into the second quarter? Will we continue to see this pressure?"

Another thing is being said: "Hey, Intel, you're supposed to be a manufacturing company. Why aren't you prepared for this?" Why aren't you ready? Everything is under your control, isn't it?

You own the chip design, and you own the manufacturing process. What's going on?"

I would say that one of the strengths and weaknesses of managing your own supply chain is that if you do things right, have all the materials and equipment, and everything is going your way, you have complete control over your product.

Intel's server processors, from the Intel 7 to the Intel 3 and the Intel 8 currently in development, such as Sapphire, Emerald Rapids, Granite Rapids, Sierra Forest, and Clearwater Forest, all rely on Intel's manufacturing technologies.

So, if Intel is doing a good job of distributing everything and has the right supply chains, that's actually very good for them. The downside is that if you're not doing your job well because you're focusing on too many things or variables that you can't control and that hurt you, you're going to take a beating, right?

You don't have another partner to focus solely on the manufacturing side.

Building future-proof capabilities takes time. One of the things they're doing, as I mentioned, is improving their overall production rates on a quarterly basis. They're also converting some factories.

In Oregon, they're converting a factory." Intel's 3 technology supports more server processors. Unfortunately, they don't really expect production to actually scale up until the second half of 2027.

Diamond Rapids, which will be based on Intel's 18A technology, is currently in the sampling phase, but its production expansion plan isn't really planned until 2027 either.

Overall improvements in production rates require quarterly improvements. It's not like a huge jump every quarter. So, the market is saying, "You're having supply problems." You are the only one who can control your supply chain.

However, much of what it tells us is that the production expansion will actually take place in 2027, some of it even in the second half of 2027. So why should we give you a price premium when it comes to the server processor side?

Also, during the earnings call, they stated that market share next year will be merely a function of supply. Whoever can supply the largest number of server processors will benefit.

So, these profits might not be crazy, and although Intel's profits were crazy on the other hand, the future guidance might be crazy. The guidelines for next year might improve, right ?

As long as you give me those optimistic feelings , that's what I'm looking for as a long-term investor.

If I had to add Intel to this list, I think the second and third places would be either Intel or Qualcomm. I will switch between them. The next test will be Intel's earnings, on November 3.