Intel CFO: Positive Free Cash Flow Unlikely in 2027

Intel shares fell more than 28% in early trading on October 30 after the company forecast fourth-quarter revenue below Wall Street expectations. The stock traded at $66.175 at 11:19:30 a.m. EDT, down 28.13% from the previous close, according to Yahoo Finance.

The company projected revenue of $15 billion to $16 billion, with a midpoint about 6% below third-quarter revenue. Analysts had expected $17.07 billion, according to LSEG data cited by Reuters. It forecast adjusted earnings of 25 cents a share, down from 52 cents in the third quarter.

Intel’s third-quarter revenue rose 21% from a year earlier to $16.5 billion, with GAAP net income of about $3.3 billion. But revenue at its Client Computing and Physical AI Group, which primarily sells PC chips, fell 5% to $8.1 billion. The business still accounted for nearly half of company sales.

Chief Financial Officer David Zinsner said in his earnings remarks that PC makers were reducing inventories and cutting purchases. He expects revenue from Intel’s client division to fall more than 20% in the fourth quarter from the third. Intel said memory shortages and higher prices were pushing up computer prices while household and corporate budgets remained tight. It expects PC demand to stay weak at least through the first half of 2027.

Intel is reducing PC chip production, but factory costs cannot fall as quickly, Zinsner said. Its adjusted gross margin is expected to drop to 38% in the fourth quarter from 44.1% in the third. Gross margin measures the share of sales left after production costs, before spending on research, sales and other operations. The mix of products sold will also affect profitability.

Revenue at the Data Center and AI division rose 78% to $7.3 billion. Chief Executive Lip-Bu Tan said demand for Xeon server processors was strong, but Intel could not produce and package enough chips to meet it. Wafer output and a shortage of substrates—the materials that connect chips to external circuitry—were limiting deliveries.

Intel’s Kiryat Gat factory in Israel stopped production after an accident in mid-October that caused fatalities and injuries among employees. In its October 29 quarterly filing, Intel said the shutdown had lasted about two weeks and that it expected operations to resume by the end of the month.

The company’s fourth-quarter forecast includes an estimated $300 million reduction in revenue, almost entirely from 10-nanometer server products. Zinsner told Reuters on October 29 that he expected a similar revenue hit in the first quarter of 2027.

Intel Foundry, its chipmaking division, posted an operating loss of about $1.9 billion in the third quarter. The company said more efficient production was lowering wafer costs, but it continued to invest in new manufacturing technologies and capacity.

Intel generated about $5.1 billion in cash from operations in the third quarter and spent roughly $4.2 billion on factories and equipment, according to its cash-flow disclosures. That spending was equivalent to about 82% of operating cash flow. A separate $23 billion share offering during the quarter provided additional funding.

Zinsner expects capital spending to reach about $20 billion in 2026 and rise significantly in 2027 as Intel adds equipment and factory space to increase chip output.

Spending on several generations of manufacturing technology will overlap in 2027, Zinsner said on the October 29 earnings call, according to a transcript published by Investing.com. He said Intel was unlikely to generate positive free cash flow that year after its capital investments.

Intel also signed two agreements after the quarter ended to secure future substrate supplies. In its quarterly filing, it put the required funding at $5.3 billion to $6.1 billion, with some terms still to be finalized. The company expects to pay about $3.3 billion of those commitments by the end of 2027.