Intel (INTC.O), the renowned chip maker, has delivered a surprising quarterly profit, signaling a potential turnaround as the slump in the PC market begins to ease. The company’s upbeat forecast for third-quarter earnings has surpassed Wall Street expectations, leading to a remarkable 6 percent surge in its shares.
Over the past year, the PC market faced a significant decline as consumer demand slowed, leading to a buildup of inventory as many had already acquired the necessary devices during the pandemic. However, the oversupply situation is starting to abate, with PC shipments declining by just 11.5% in the June quarter, a notable improvement compared to the 30% drop in each of the previous two quarters, according to Canalys data.
This positive trend in the PC market has prompted Intel to forecast higher profits for the third quarter. The company’s margins, which had experienced a nearly 50% decrease from all-time highs, are now expected to improve in the latter half of the year.
The success of Intel can largely be attributed to its resurgence in desktop sales, which have rebounded significantly from near-record lows in the previous quarter. This resurgence has contributed to boosting Intel’s market value by nearly $9 billion, as it seeks to regain ground against rivals such as Nvidia (NVDA.O), Advanced Micro Devices (AMD.O), and Broadcom (AVGO.O).
Although Intel’s largest segment, which includes personal computers, experienced more than four consecutive quarters of sharp declines, the company is determined to reclaim its position in the market. Despite a 12% decline in revenue, which fell to $6.8 billion from $7.7 billion a year earlier, the company’s foundry business, which manufactures chips for other companies, has reported revenue of $232 million, compared to $57 million a year ago.
Intel Chief Executive Pat Gelsinger highlighted the significance of advanced packaging in the industry, as it enables high-performance computing and artificial intelligence. The company is actively exploring opportunities in this area and recently announced a collaboration with Ericsson (ERICb.ST) on a chip that will utilize the most advanced manufacturing technology.
However, Intel faces challenges in the data center and artificial intelligence sales, which experienced a 15% drop to $4 billion from $4.7 billion in the year-ago quarter. The increased focus on AI computing in the cloud, with major players like Microsoft (MSFT.O) and Alphabet increasing spending on data centers, has impacted the server chip market for Intel. Additionally, the slow recovery in China has further hindered the company’s progress.
While Intel continues to battle for relevance in the AI sector and faces competiti
on from AMD and Nvidia, the company remains optimistic about its AI chip sales, forecasting at least $1 billion worth of sales through 2024.
Looking ahead, Intel projects adjusted earnings per share of 20 cents in the current quarter, surpassing analysts’ expectations of 16 cents. The company’s adjusted revenue is estimated to be between $12.9 billion and $13.9 billion, with the average of $13.4 billion exceeding forecasts, though still indicating a 12.6% year-over-year decline.
Despite the challenges, Intel’s shares have risen by about 30% this year, demonstrating investors’ anticipation of an industry recovery. As the company navigates through changing market dynamics and continues to innovate, the chip maker aims to reclaim its position as a leading player in the semiconductor industry.
