Intel says 2027 will probably not produce free cash flow as its factory bill climbs

Intel's third quarter was carried by servers: revenue in its data-center and AI division rose 78% from a year earlier to $7.3 billion. The bigger change in its results this week was what the company said about the cost of keeping up. Asked whether it would generate free cash flow next year, chief financial officer David Zinsner said, "I don't think that this will be a year in which we see positive cash flow." In January, the company had guided to positive adjusted free cash flow for this year; in April it narrowed that to exclude the cost of buying out its partner in a joint factory investment.

The reasoning starts with supply. Management now expects the industry to ship more than 30% more server processors in both this year and next, and said growth would be higher if the industry could make more chips. Intel said demand for its own server chips still runs well ahead of what it can supply. Intel's answer is to buy manufacturing tools: firm orders placed with equipment suppliers rose nearly 40% from the previous quarter.

The spending arrives while the rest of the business softens. For the fourth quarter Intel guided non-GAAP earnings per share to $0.25, after $0.52 in the September 2026 quarter, which had itself beaten the company's guide. PC makers are running down their stocks of Intel chips as memory shortages raise the cost of a PC, and management expects client revenue to fall by more than a fifth from last quarter. A shutdown at Fab 28, its plant in Israel, is expected to take about $300 million of revenue and 2 percentage points of gross margin out of the quarter, on what the company called an early assessment. Some of this is temporary: the chief financial officer expects most of the inventory cut in the fourth and first quarters and most of the Israel plant's margin hit in the fourth. But the company expects the PC slowdown to last at least through the first half of next year, and it is planning for a smaller PC market again next year.

Then there is the capital bill. Intel said its gross capital spending for the year remains on track at $20 billion. Its cash-flow statement shows two lines of additions to property, plant and equipment in the first nine months, together $11.8 billion; taking the guide less both, the fourth quarter is left with about $8.2 billion, calculated from the reported figures. That is nearly twice the $4.2 billion of gross capital spending the company reported for the third quarter. Mr Zinsner described equipment spending as rising sharply last quarter and expected it to rise further in this one.

Next year adds to that. Management expects gross capital spending to be up strongly, while ramping its 18A manufacturing process and preparing the next one, 14A; it has not yet set the figure. Mr Zinsner tied the decision directly to the $23 billion share sale the company completed in August, saying that money was raised to put Intel in position for this spending.

The balance sheet shows the money is there: cash and short-term investments of $54.0 billion against debt of $50.1 billion. Management also said it remains committed to reducing debt next year despite the higher spending. Holders are being asked to fund a year in which Intel spends ahead of the server demand it describes, while the PC slump and the Fab 28 losses land in the same months.