Chipmaker Intel turns unexpected profit, outlines bullish forecast

SAN FRANCISCO - Chipmaker Intel on Thursday posted a surprise quarterly profit as a PC market slump started to ease, and forecast third-quarter earnings above Wall Street expectations, sending its shares up about 6 per cent.

The market for personal computers has tumbled over the past year, with inventory piling up because consumers had already bought machines needed during the Covid-19 pandemic.

But the glut has started to ease, with PC shipments falling only 11.5 per cent in the June quarter compared with a 30 per cent slump in each of the previous two quarters, Canalys data showed.

The PC market improvement prompted Intel to forecast better margins for the third quarter. Its margins in recent quarters were nearly half its historical highs, but Intel said on Thursday it expects profit margins to improve in the second half of the year.

“Intel did outperform almost exclusively on the strength of desktop sales, which rebounded from a near-record low last quarter,” said Mr Edward Snyder, analyst at Charter Equity Research.

Intel’s stock rally added nearly US$9 billion (S$12 billion) to the company’s market value, which in recent years has fallen far below that of rivals including Nvidia, Advanced Micro Devices and Broadcom.

After over four consecutive quarters of deep declines across its biggest segment that includes personal computers, revenue dropped 12 per cent to US$6.8 billion, from US$7.7 billion in the year-ago period.

Intel’s foundry business, which aims to make chips for other companies and is its smallest sales contributor, reported revenue of US$232 million, up from US$57 million a year ago.

Intel chief executive Pat Gelsinger told Reuters that some of the foundry sales increase came from “advanced packaging”, a process in which Intel can combine pieces of chips made by another company to create a more powerful chip.

“There’s a lot of interest in the industry for advanced packaging, because it is essential to deliver high-performance computing and AI (artificial intelligence),” Mr Gelsinger said. “So we expect a lot more business coming our way in that area.”

On Tuesday, the company said it would work with Swedish telecommunications gear maker Ericsson on a chip that Intel will fabricate with its most advanced manufacturing technology.

Sales in Intel’s data centre and AI business fell 15 per cent to US$4 billion from US$4.7 billion in the year-ago quarter.

Those results beat Wall Street estimates but reflect that cloud majors Microsoft and Alphabet expect to ramp up spending on data centres, with most of the spending benefiting Nvidia that makes chips for AI.

The focus on chips that are suited for AI computing in the cloud have hurt the market for server chips for Intel, as has a

sluggish recovery in China.

“It is still very clear that Intel is absolutely losing share around server CPUs (central processing units), and I think it is fair to say that they are fighting for relevance in AI,” said Ms Jenny Hardy, portfolio manager at GP Bullhound that owns AMD and Nvidia stock.

An inventory glut in server CPUs, will persist until the second half of the year, Mr Gelsinger said on the conference call, and that data centre chip sales will decline modestly in the third quarter before recovering in the fourth quarter.

Mr Gelsinger said right now, Intel has enough customer orders to sell at least US$1 billion worth of its AI chips through 2024.

Intel forecast adjusted current-quarter earnings per share of 20 US cents. Analysts polled by Refinitiv expected 16 US cents.

It forecast adjusted revenue of about US$12.9 billion to US$13.9 billion, compared with estimates of US$13.23 billion. The midpoint of US$13.4 billion exceeded estimates, but still implies a 12.6 per cent drop over the year in Intel’s business.

Intel forecast adjusted gross margin of 43 per cent for the third quarter, compared with estimates of 40.6 per cent.

Intel shares have risen about 30 per cent so far in 2023, compared with a 50 per cent rise on the Philadelphia SE Semiconductor index, in anticipation of an industry recovery. REUTERS