Surprising the market, chip maker Intel (INTC.O) reported a quarterly profit amid signs of easing in the PC market slump. The company’s announcement of higher-than-expected third-quarter earnings sent its shares soaring by about 6 percent. This shift comes as welcome news for the PC industry, which has been grappling with challenges due to oversupply and a decline in demand following the surge in computer purchases during the pandemic.
According to Canalys data, the decline in PC shipments during the June quarter was significantly less severe, at just 11.5%, compared to the steep 30% declines seen in the previous two quarters. This promising sign of improvement prompted Intel to forecast higher profits in the third quarter, offering hope for the company’s bottom line. In recent quarters, Intel’s margins have been affected, nearly halving from all-time highs, but the company expressed confidence in an expected improvement in profit margins during the second half of the year.
Edward Snyder, an analyst at Charter Equity Research, pointed out that Intel’s success can largely be attributed to a resurgence in desktop sales, bouncing back from a near-record low in the previous quarter. This resurgence in Intel’s fortunes led to a surge in the company’s market value by nearly $9 billion.
However, it’s essential to recognize that Intel has faced challenges in some of its segments, with a notable decline of 12% in revenue from its largest segment, which includes personal computers. On the positive side, Intel’s foundry business, which manufactures chips for other companies, saw a significant increase in revenue, reaching $232 million, a stark contrast to the $57 million reported a year ago.
Intel’s Chief Executive, Pat Gelsinger, expressed optimism in the company’s foundry sales, attributing part of the increase to “advanced layout.” This process involves combining parts of chips made by another company to create more powerful chips, garnering interest in the industry due to the importance of high-performance computing and artificial intelligence. In collaboration with Swedish telecommunications equipment maker Ericsson, Intel will produce a chip using its most advanced manufacturing technology, furthering its commitment to AI.
On the downside, Intel’s data center and artificial intelligence sales fell 15% to $4 billion from the year-ago quarter. The growing focus on chips suitable for AI computing in the cloud has adversely impacted the server chip market for Intel, with cloud majors like Microsoft and Alphabet increasing spending on data centers, predominantly favoring Nvidia as a provider for AI chips.
Despite these challenges, Intel remains confident in its future prospects, forecasting adjusted earnings per share of 20 cents for the current quarter, surpassing analysts’ expectations of 16 cents. The company projects adjusted revenue between $12.9 billion and $13.9 billion, with an average estimate of $13.4 billion. While the forecast exceeds expectations, it still implies a 12.6% year-over-year decline in Intel’s business.
Overall, Intel is anticipating an adjusted gross margin of 43% in the third quarter, surpassing estimates of 40.6%, signifying the company’s determination to capitalize on the anticipated industry recovery. With Intel shares rising approximately 30% this year, compared to the 50% rise in the Philadelphia SE Semiconductor (.SOX) index, market watchers are keeping a close eye on Intel’s performance and its position in the ever-evolving semiconductor landscape.
