Intel forecasts third-quarter profit above estimates
CHIPMAKER Intel on Thursday (Jul 27) posted a surprise profit as a PC market slump started to ease, and it 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 pandemic.
But the glut has started to ease, with PC shipments falling only 11.5 per cent in the June quarter compared to a 30 per cent slump in each of the previous two quarters, Canalys data showed.
The PC market improvement boosted Intel’s results, prompting it to forecast better profit margins for the third quarter. Its margins in recent quarters were nearly half its historical highs.
Intel stock rally added nearly US$9 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.
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“Intel did outperform almost exclusively on the strength of desktop sales which rebounded from a near-record low last quarter,” said Edward Snyder, analyst at Charter Equity Research.
Intel’s foundry business, which aims to make chips for other companies, reported revenue of US$232 million, up from US$57 million a year ago.
Intel chief executive officer 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),” Gelsinger said. “So we expect a lot more business coming our way in that area.”
Intel remains on track to deliver five generations of advanced chip production capabilities within four years, Gelsinger said in the conference call with analysts.
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 it has disclosed.
Sales by Intel’s data centre and AI segment fell 15 per cent to US$4 billion from US$4.7 million 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 companies like Nvidia that make chips for AI.
“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 Jenny Hardy, portfolio manager at GP Bullhound.
An inventory glut in server CPUs, will persist until the second half of the year, Gelsinger said in the conference call.
Intel forecast adjusted current-quarter earnings per share of 20 US cents. Analysts polled by Refinitiv were expecting 16 US cents.
Intel forecast adjusted current-quarter revenue of about US$12.9 billion to US$13.9 billion, compared to 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 said it expects profit margins to improve in the second half. Its adjusted margins have declined to the lowest since early 2021 when it embarked on a multi-year transition into a contract chipmaker.
It forecast adjusted gross margin of 43 per cent for the third quarter, compared to estimates of 40.6 per cent.
Intel shares have risen about 30 per cent so far this year, compared to a 50 per cent rise on the Philadelphia Semiconductor index in anticipation of an industry recovery.
Chip toolmaker KLA, which also reported market-beating quarterly revenue and profit, rose 3 per cent after hours. REUTERS
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