Here’s what Wall Street is saying about Intel ahead of earnings

Intel (INTC) is scheduled to report results of its fiscal third quarter after the market close on October 31, with a conference call scheduled for 5:00 pm ET. What to watch for:

LAST QUARTER: Along with its last report, Intel guided for Q3 adjusted earnings per share of (3c) on revenue of $12.5B-$13.5B. At the time, analysts were expecting the company to report Q3 EPS of 31c on revenue of $14.35B, but those figures have since dropped to (2c) and $13.02B, respectively. Intel also at the time announced a $10B cost reduction plan in an effort to increase efficiency. As part of the plan, the company said it would reduce its headcount by over 15% and suspend its dividend starting in the fourth quarter.

Following the Q2 report, Raymond James downgraded Intel to Market Perform from Outperform, with the firm saying it expected the Q3 outlook to be weak but is surprised by the magnitude, especially on margins. While management sounded confident about longer-term targets, gross margin headwinds are expected to persist through 2025, and there are limited incremental revenue drivers near-term, the analyst told investors in a research note. As such, Raymond James expects Intel’s profitability to remain under pressure.

In addition, BofA downgraded Intel at the time to Underperform from Neutral. Profitability challenges are expected to persist into calendar year 2026, said the analyst, who cut the firm’s calendar year 2024, 2025 and 2026 pro-forma EPS estimates by 75%, 44% and 29%, respectively. The news from the quarterly report also prompted downgrades at New Street, Benchmark, and Argus, as well as price target cuts from Cantor Fitzgerald, TD Cowen, Truist, Morgan Stanley, and others.

FOUNDRY: In mid-September, Intel CEO Pat Gelsinger sent a note to staff saying that, to build on the company’s progress, it intends to establish Intel Foundry as an independent subsidiary inside of Intel. This governance structure will complete the process the company initiated earlier this year when the company separated the P&L and financial reporting for Intel Foundry and Intel Products, Intel said, adding that Intel had also struck a deal with Amazon Web Services (AMZN).

Gelsinger added that the company will take actions to streamline the Intel Products portfolio. “Our top priority is to maximize the value of our x86 franchise across client, edge and data center markets, including with a broader range of custom chiplets and other customized offerings that meet emerging customer needs, as demonstrated by today’s AWS announcement,” Gelsinger said. “Our AI investments-including continued leadership of the AI PC category, our strong position with AI in data center, and our accelerator portfolio-will leverage and complement our x86 franchise with a focus on enterprise, cost-efficient inferencing. Alongside this, we are taking steps toward simplifying our portfolio to unlock efficiency, accelerate innovation and deliver more integrated solutions.”

Following the news, analysts were somewhatt mixed on Intel, with Deutsche Bank analyst Ross Seymore saying that Foundry momentum is “gaining steam” with the Amazon Web Services news and the Secure Enclave award, while Citi analyst Christopher Danely said the firm still believes that Intel should exit the Foundry business entirely. Meanwhile, BofA said it sees “more questions than answers” following the update, saying that while the AWS win “sounds impressive,” Intel has already been supplying AWS with CPUs for a long time, so customization isn’t exactly something new.

QUALCOMM/APOLLO: Just days after the Foundry update, the Wall Street Journal’s Lauren Thomas and Laura Cooper (QCOM) made a takeover approach to Intel. Such a deal would be “massive and come at a time when the chipmaker is sputtering,” the authors said. A couple day slater, Bloomberg reported that Apollo Global (APO) has offered to make a multibillion-dollar investment in Intel, in a move that would be a vote of confidence in the chipmaker’s turnaround strategy, according to people familiar with the matter.

The next day, however, a person close to Qualcomm told the Financial Times that the chipmaker would only pursue a friendly deal for Intel, though people with knowledge of Intel’s thinking say the company is concerned that a deal would be hampered by antitrust regulators, The Financial Times’ Maria Heeter, James Fontanella-Khan, and Bryce Elder report. Intel is working with Goldman Sachs (GS) and Morgan Stanley (MS) to evaluate Qualcomm’s approach, people with knowledge of the matter say, adding that Intel is considering a wide range of asset sales. CNBC had previously reported that investment bankers from Morgan Stanley have been advising Intel for several months on how to defend itself from activist investors.

Commenting on the possibility of a deal between Qualcomm and Intel, Bernstein said it “could of course construct a rationale,” but it “REALLY struggles with the fabs.” Intel is having enough trouble with them on its own, and Bernstein doesn’t know why Qualcomm would be a better owner for those assets. Overall, the firm says it is hard for it to see a deal working out financially with acceptable risk if the fabs are included. “We’ll be honest, we would prefer that Qualcomm not pursue this as it seems very risky to us given uncertain returns,” Bernstein said.

Meanwhile, BofA analysts says a possible takeover is “intriguing but perhaps impractical,” as the scale benefits are outweighed by regulatory and financial hurdles. Additionally, Wells Fargo said it believes a Qualcomm + Intel combo has relatively low probability as such a combination would have a tough time passing regulatory scrutiny – especially in China. On the other hand, the firm thinks an equity-like investment from Apollo could be a very possible outcome, which would be a positive sign of confidence. However, the extent of existing shareholder dilution would be a key consideration, Wells added.