J.P. Morgan: Intel and its Asian supply chain: PC demand weakens sharply, while server CPUs remain supply-constrained

Why did results beat expectations while fourth-quarter guidance was weak?

Intel’s third-quarter 2026 results exceeded expectations, driven mainly by strong server CPU demand and improved supply. However, fourth-quarter revenue guidance fell short of expectations, with the midpoint down 9% quarter over quarter, as weakness in the PC business offset server growth.
The Client Computing and Physical AI Group (CSPG) reported a 9% quarter-over-quarter decline in third-quarter revenue, broadly in line with the company’s expectations. As memory cost pressures intensified toward the end of the quarter, customers adjusted purchases, accelerated inventory consumption, and aligned orders with their 2027 spending budgets. The company guided for the business’s fourth-quarter revenue to fall more than 20% quarter over quarter.

Intel expects global PC market shipments to fall about 12% year over year in 2026, including a decline of more than 20% in the second half; it expects a further 10% decline in 2027, with a pronounced drop in the first half and a possible improvement in the second half.
JPMorgan believes this outlook implies downside risk to its 2027 PC shipment forecast, and that channels and component suppliers may face inventory adjustments. The bank remains cautious about higher prices depressing sales volumes and ranks its preferred PC companies as Lenovo, ASUS and MSI.

Intel’s data center and AI business reported 17% quarter-over-quarter revenue growth in the third quarter. The company expects another mid-teens percentage increase in the fourth quarter, primarily from increased output at its own factories and external suppliers. Demand spans large and emerging cloud service providers, and the company is shifting some PC CPU capacity to servers.
Intel expects industry server CPU shipments to grow more than 30% in both 2026 and 2027, with further upside if supply increases. JPMorgan estimates CPU demand growth at about 35%–40% and expects ASPEED, Accton, Delta and Unimicron to benefit from the server upcycle.
The bank also notes, however, that component mismatches could widen the supply-demand gap between upstream components and downstream server systems, potentially triggering inventory controls in the second half of 2027.

Intel’s foundry revenue rose 16% quarter over quarter in the third quarter, driven mainly by Intel 3 and 18A. The company says the cost structures of the two processes improved by 15% and 40%, respectively, from the first quarter of 2026, and that Intel 3 is expected to become profitable in 2027.
The company plans to use 18A-P for internal product manufacturing by the end of 2026 and is engaging with external customers. JPMorgan expects 18A-P to struggle to attract large foundry customers and believes 14A may receive more attention. However, given TSMC’s accelerated development of A14 and aggressive capacity expansion, the bank believes TSMC may still retain more than 95% of the advanced process market.
Tight advanced packaging supply is prompting AI chipmakers to consider alternatives to TSMC’s CoWoS, and Intel expects to announce several EMIB customers over the next two quarters. JPMorgan nevertheless believes CoWoS will remain the mainstream solution for most CPUs and AI-specific chips; substrate supply and yields for embedded packaging remain key bottlenecks.