Intel forecasts third-quarter profit above estimates

By Max A. Cherney and Chavi Mehta

(Reuters) – Chipmaker Intel (NASDAQ:) on Thursday 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%.

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% in the June quarter compared to a 30% 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 $9 billion to the company’s market value, which in recent years has fallen far below that of rivals including Nvidia (NASDAQ:), Advanced Micro Devices (NASDAQ:) and Broadcom (NASDAQ:).

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

“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 $232 million, up from $57 million a year ago.

Intel Chief Executive Officer Pat Gelsinger told Reuters that some of the increase in foundry sales came from “advanced packaging,” a process in which Intel can take pieces of chips made by another company and tie them together 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,” Gelsinger said. “So we expect a lot more business coming our way in that area.”

Sales by Intel’s data center and AI segment fell 15% to $4 billion from $4.7 million in the year-ago quarter. Those results beat Wall Street estimates, but reflect that cloud majors Microsoft (NASDAQ:) and Alphabet (NASDAQ:) expect to ramp up spending on data centers with most of the spending benefiting companies like Nvidia that make chips for artificial intelligence.

“It is still very clear that Intel is absolutely losing share around server CPUs, and I think it is fair to say that they are fighting for relevance in AI,” said Jenny Hardy, portfolio manager at GP Bullhound.

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

Intel forecast adjusted current-quarter revenue of about $12.9 billion to $13.9 billion, compared to estimates of $13.23 billion. The midpoint of $13.4 billion exceeded estimates but still implies a 12.6% 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% for the third quarter, compared to estimates of 40.6%.

Intel shares have risen about 30% so far this year, compared to a 50% rise on the in anticipation of an industry recovery.