Demand Is Back. Margins Aren’t: Intel’s Q4/FY25 Print and the Path to 40%+ GM
Intel Corporation delivered a mixed close to 2025, with Q4 revenue of $13.7 billion (down 4% YoY) and non-GAAP EPS of $0.15, both above the company’s guidance. Full-year 2025 revenue was $52.9 billion (flat YoY) and non-GAAP EPS $0.42, a return to profitability after 2024’s loss. The upside in Q4 was driven by a surge in data center CPU demand and tight cost controls, yielding better gross margin than expected. However, supply constraints meaningfully limited Intel’s ability to meet all this demand. Management acknowledged that revenue “would have been higher if we had more supply” – a theme that carried into a cautious Q1 2026 outlook for ~$12.2 billion in revenue and breakeven EPS, below consensus. Intel expects supply to hit a low point in Q1 before improving by Q2, but the weak near-term guidance disappointed investors. Intel shares fell about 12–14% after earnings, as the market digested that booming AI-driven demand is being offset by operational bottlenecks.
The quarter highlights the core debate on Intel: strong end-market demand vs. the company’s execution challenges. On one hand, PC volumes have stabilized and cloud customers are clamoring for Intel’s latest Xeon chips, validating the essential role of CPUs in an AI-centric world. On the other, Intel’s turnaround remains fragile – margins are still low, and years of underinvestment mean it cannot yet fully capitalize on the growth. Management struck an optimistic tone that 2025 marked an “important year of progress” toward building a “new Intel”, citing on-time product launches (the first 18A processors) and a streamlined organization. But they also conceded that Intel was “not able to fully meet the demand” in its markets and must improve execution and yields. The stock’s pullback reflects a show-me stance: Intel has momentum, but investors want proof that supply, margins, and external customer traction will fall into place. The following analysis examines Q4/FY 2025 performance, segment trends, and the road ahead – incorporating management commentary from the earnings release and call, plus broader industry context – to assess Intel’s financial health and strategic outlook.
Financial Performance
Revenue & EPS: Intel’s Q4 2025 revenue of $13.7B slightly exceeded guidance and was up 2% sequentially (though down 4% YoY). This was the fifth consecutive quarter that revenue topped Intel’s forecast. Non-GAAP EPS of $0.15 also beat expectations, driven by higher volumes and improved cost efficiency. On a GAAP basis, Q4 was a loss of $0.12 per share due to restructuring and asset write-downs. For the full year, Intel essentially broke even (GAAP EPS –$0.06) and earned $0.42 non-GAAP – a notable swing from 2024’s losses as cost cuts and slightly better gross margins took hold.
Margins: Gross margin remains the weak spot. Q4 GAAP gross margin was 36.1%, down ~3 points YoY. On a non-GAAP basis it was 37.9%, about 140 bps above guidance but down from 42.1% a year ago. Higher factory under-utilization and the costly ramp of Intel’s 18A node (used in new products) hurt margins. In addition, Intel had a greater mix of outsourced production for client chips, which carries lower margin. These factors offset the benefit of lower inventory reserves in the quarter. Operating expenses have been sharply reduced – full-year R&D and SG&A was down 15% YoY on a non-GAAP basis – helping slim Q4 operating margin stay positive (8.8% non-GAAP). Management is not satisfied: 34–35% gross margin “is by no means acceptable” and the first target is to climb back to 40%+ over time. That will depend on improving 18A yields and scaling volume; Intel noted Panther Lake (Core Ultra Series 3) is still margin-dilutive but should turn accretive as yields improve each quarter.
Cash Flow & Balance Sheet: Despite thin margins, Intel’s cash flow is stabilizing. Q4 operating cash flow was $4.3B, and 2025 OCF totaled $9.7B. Capital expenditures were $17.7B in 2025, but Intel received about $6.5B in offsets (government grants, partner investments). As a result, full-year adjusted free cash flow was -$1.6B, much better than the -$9.6B in 2024, and Q4 FCF was +$2.2B. Intel ended 2025 with $37.4B in cash and short-term investments after a series of capital-raising moves: it sold $5B of stock to NVIDIA in Q4, brought in $2B from SoftBank, monetized part of Mobileye and the Altera FPGA unit, and received advanced funding via the U.S. CHIPS Act. This bolstered liquidity and allowed $3.7B of debt payoff. Intel’s balance sheet is now stronger to support its heavy investment needs.
Q1 2026 Guidance: Intel expects a soft start to 2026 due to the supply issues. Q1 revenue is forecast at $11.7–$12.7B (the midpoint implies ~6% YoY growth, but a sub-seasonal ~-11% QoQ). Non-GAAP gross margin is projected around 34.5%, and non-GAAP EPS roughly $0.00 (breakeven). This guide is weaker than analysts hoped, reflecting “acute” internal supply constraints in Q1 that will hit the client segment especially hard. Intel is prioritizing available output for server chips, so it anticipates a larger Q1 revenue drop in Client Computing (PC CPUs) than in Data Center. Management did express confidence that Q1 is the trough for supply, with factory output set to increase in Q2 and beyond. They also flagged a new headwind: industry-wide price hikes in memory, NAND, and substrates are increasing PC build costs and could “limit our revenue opportunity” in 2026 if PC OEMs cut production. On capital spending, Intel now plans 2026 capex to be flat to slightly down from 2025, higher than previous intent to cut capex, because it is adding equipment to boost capacity (especially on mature nodes) in response to the demand signals. Even so, Intel reiterated it expects positive free cash flow in 2026 as earnings improve and partners share more build-out costs.
In summary, Intel’s financials show early turnaround progress amid ongoing constraints. Revenue has bottomed-out and is nudging up, and aggressive cost reductions have restored a slim profit on an adjusted basis. But margins remain far below historical norms, and unmet demand (rather than lack of demand) is capping near-term growth. The company’s challenge – and opportunity – is to translate the current demand backdrop into improved profits by executing on supply improvements and node ramp-ups in the coming quarters.
Segment Deep Dive
Client Computing Group (CCG) – PC Processors & Adjacent. Q4 CCG revenue was $8.2B, down 7% YoY and down 4% QoQ. The PC market has shown signs of recovery: Intel estimates 2025 PC unit TAM topped 290 million, ~4% growth off the 2023 bottom. Within that, Intel is heavily promoting “AI PC” features as a differentiator. In Q4, even as overall client revenue fell, AI-enabled PC unit volumes grew 16% sequentially. This reflects the launch of Core Ultra Series 3 (codename Panther Lake) – Intel’s first PC chips with a built-in neural processing unit (NPU) for AI. Intel actually delivered 3 different Series 3 SKUs in Q4 (ahead of the 1 initially planned), and they have been well-received. Reviews cite up to 70% gen-on-gen graphics improvements and strong battery life, putting Panther Lake’s integrated GPU performance in the class of a mid-range discrete notebook GPU. Over 200 laptop designs featuring Core Ultra 3 were announced, spanning premium and mainstream segments. This bodes well for Intel’s competitive position against AMD in notebooks, provided it can meet the demand. The new chips are initially expensive to manufacture – Intel noted Panther Lake is still dilutive to gross margin due to low early yields. Additionally, a global memory shortage is raising DRAM and SSD prices, which could dampen PC demand and complicate Intel’s planned rebound. Intel is mitigating by allocating its limited wafer supply toward higher-end PC chips and reducing low-end volume. CCG’s outlook for 2026 is modest growth (Intel expects client CPU consumption to remain healthy) but with a big caveat: if memory or component constraints persist, OEMs might ship fewer PCs, limiting Intel’s upswing. Winning back share is also on Intel’s agenda – after years of share loss to AMD and Apple, Intel’s roadmaps (Panther Lake now, “Nova Lake” in 2026) aim to “fortify market share and profitability” in client over the next several years.
