Intel Corp. surprised investors by reporting a net profit of $1.5 billion in its second-quarter earnings results, beating expectations and marking a significant turnaround from its previous loss. The news caused Intel’s stock to rise more than 7% in extended trading.
While the company’s revenue dropped by 15% to $12.9 billion compared to the previous year, it still exceeded analysts’ predictions. Analysts had anticipated a loss of 3 cents per share on sales of approximately $12.13 billion.
In another positive development, Intel shared its outlook for the third quarter, expecting earnings of 20 cents per share on revenue of $13.4 billion. This forecast surpasses the consensus estimate of 16 cents per share on $13.23 billion in sales.
Intel’s gross margin also exceeded expectations, reaching almost 40% on an adjusted basis, higher than the company’s forecast of 37.5%. This is encouraging for investors who hope to see continued gross margin expansion despite Intel’s significant investments in manufacturing capability.
Although this marks Intel’s sixth consecutive quarter of declining sales, the company’s CEO Pat Gelsinger remains optimistic. While acknowledging the persistent weakness in every segment of the business, Gelsinger noted that the results exceeded the company’s own projections, thanks to the significant momentum in its foundry business.
It is worth noting that server chip sales, a key area for Intel, are not expected to recover until the fourth quarter. One of the challenges Intel faces is that cloud infrastructure providers are prioritizing graphics processing units for artificial intelligence, resulting in reduced spending on Intel’s hardware.
Gelsinger, who took over as CEO of Intel in 2021 with the mission to revive the company’s fortunes, previously announced a cost-savings plan of $3 billion that will be implemented by 2023. Intel’s CFO, David Zinsner, shared that the company is making good progress on this initiative, having exited nine lines of business since Gelsinger rejoined the company, resulting in annual savings of over $1.7 billion.
In terms of business segments, Intel’s client computing business, which includes central processing units for laptops and desktops, reported a 12% decline in revenue to $6.8 billion. This reflects the overall slump in the personal computer market following the conclusion of the COVID-19 pandemic. Additionally, the Data Center and AI segment, covering server chip sales, saw a 15% decline in sales, amounting to $4 billion.
Intel’s other business segments, including the Network and Edge division and Mobileye, experienced declines in sales as well. The Network and Edge division, which produces chips for the telecommunications industry, reported sales of $1.4 billion, down 38%. Mobileye, a subsidiary focused on automotive chips, delivered $454 million in sales, representing a 1% decrease.
On a positive note, Intel’s nascent Foundry Service business generated revenue of $232 million. This segment holds potential for Intel as it produces chips for other chipmakers without their own manufacturing facilities. The company aims to match Taiwan Semiconductor Manufacturing Co.’s manufacturing capacity by the end of 2026 to produce advanced silicon for other companies.
Gelsinger expressed Intel’s ambitions in the field of artificial intelligence, stating a desire to integrate AI into all of the company’s products. While Nvidia Corp. currently dominates the AI industry, Intel plans to release its Meteor Lake CPU, equipped with an integrated neural processor for machine learning tasks, later this year. This initiative aligns with Intel’s strategy to expand its presence in AI.
The competition with Advanced Micro Devices Inc. (AMD) is another significant aspect for Intel to navigate. In recent years, AMD has gained market share comparable to Intel’s. As a result, Intel must not only address its manufacturing delays but also fend off increased competition.
As Intel aims to transform itself, investors are pleased with the positive quarterly results and significant progress made on the cost-savings plan. Intel’s future success hinges on its ability to adapt to evolving industry trends, address weaknesses, and regain its competitive edge.
