Intel predicts higher-than-expected Q3 profit.
Intel predicts higher-than-expected Q3 profit.
Intel Surprises with Profit Amidst PC Market Slump
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In a surprising turn of events, chipmaker Intel has posted a profit, beating market expectations. The company’s shares soared by approximately 6% following the announcement. This positive performance is primarily attributed to a much-needed improvement in the personal computer (PC) market, which had been heavily impacted by the pandemic.
Over the past year, the demand for personal computers had significantly declined as consumers had already purchased the necessary devices for remote work and distance learning. This resulted in a buildup of inventory and a slump in the PC market. However, recent data from Canalys reveals that the glut is starting to ease. PC shipments, which previously experienced a 30% decline in each of the previous two quarters, fell only 11.5% in the June quarter.
The improvement in the PC market has directly benefited Intel, leading to better profit margins and a positive outlook for the third quarter. In recent quarters, the company’s margins were nearly half of its historical highs. The significant boost in Intel’s stock has added nearly $9 billion to its market value. This is a much-needed positive outcome for the company, which has been trailing behind competitors such as Nvidia, Advanced Micro Devices, and Broadcom.
Despite the overall positive performance, Intel did experience a drop in revenue in its largest segment, which includes personal computers. Revenue fell by 12% to $6.8 billion compared to the previous year. However, this decline was offset by the strength of desktop sales, which rebounded from a near-record low in the previous quarter. Edward Snyder, an analyst at Charter Equity Research, commented on Intel’s outperformance in this area.
In addition to the PC market, Intel’s foundry business also reported an increase in revenue. The company aims to make chips for other companies through its foundry business. Revenue for this segment rose from $57 million to $232 million over the course of a year. Intel’s CEO, Pat Gelsinger, explained that part of this increase can be attributed to “advanced packaging,” a process through which Intel combines chips made by other companies to create more powerful ones. Gelsinger anticipates significant future growth in this area, as advanced packaging is crucial for high-performance computing and artificial intelligence.
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Gelsinger also shared Intel’s commitment to delivering five generations of advanced chip production capabilities within four years. This highlights the company’s ambition to remain at the forefront of technological advancements. Furthermore, Intel recently announced a collaboration with Swedish telecommunications gear maker Ericsson to produce a chip using its most advanced manufacturing technology.
Despite the positive news, Intel’s data center and AI segment experienced a 15% decline in sales, reflecting a shift in spending by cloud majors such as Microsoft and Alphabet. These companies are expected to increase their investments in data centers, benefiting chip makers like Nvidia, who specialize in artificial intelligence.
Jenny Hardy, a portfolio manager at GP Bullhound, commented on Intel’s struggle to compete in the server CPUs and AI markets. She suggested that the company is fighting to stay relevant in these areas. Gelsinger acknowledged the inventory glut in server CPUs and projected that it would persist until the second half of the year.
Looking ahead, Intel provided an optimistic forecast for the current quarter. The company expects adjusted earnings per share of 20 cents, surpassing analysts’ estimates of 16 cents. Additionally, the forecasted adjusted revenue for the quarter is approximately $12.9 billion to $13.9 billion, exceeding expectations of $13.23 billion. This optimistic outlook is further supported by Intel’s projected improved profit margins for the second half of the year.
Intel’s performance in the stock market has been encouraging, with shares rising approximately 30% so far this year. This demonstrates investors’ confidence in the company’s ability to recover amidst the industry-wide challenges it faces. Chip toolmaker, KLA Corp, also experienced market-beating quarterly revenue and profit, resulting in a 3% rise in its shares after hours.
In conclusion, Intel’s surprise profit amidst the PC market slump is a positive indication of the company’s resilience and adaptability. The gradual recovery of the PC market and Intel’s focus on advanced chip production capabilities and advanced packaging provide promising prospects for the company’s future. With an optimistic outlook for the current quarter and an overall positive sentiment in the semiconductor industry, Intel’s performance is poised to continue its upward trajectory.
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