Intel, the renowned chip maker, delivered a surprising quarterly profit as the PC market slump began to ease, sparking optimism for the company’s future. The news of their better-than-expected performance led to a 6% surge in their shares, adding nearly $9 billion to their market value.
The PC market has faced significant challenges over the past year, with inventories piling up due to consumers already having purchased the machines they needed during the pandemic. However, the oversupply has started to diminish, with PC shipments declining by just 11.5% in the June quarter, a significant improvement compared to the steep 30% declines in the previous two quarters.
This uptick in the PC market has prompted Intel to forecast higher profits for the third quarter, which has come as a welcome relief. The company’s margins had suffered in recent quarters, but Intel expressed optimism that profit margins would improve in the second half of the year.
Analysts attribute much of Intel’s success to the rebound in desktop sales, which had previously hit a near-record low. This resurgence in desktop sales has contributed significantly to Intel’s performance, boosting their market value and helping them close the gap with rivals like Nvidia, Advanced Micro Devices, and Broadcom.
Additionally, Intel’s foundry business, responsible for making chips for other companies, has shown signs of growth. The revenue from this segment reached $232 million, up from $57 million the previous year. Intel’s CEO, Pat Gelsinger, attributed this growth to “advanced layout,” a process where Intel combines parts of chips made by another company to create more powerful chips.
While the data center and artificial intelligence sales experienced a 15% drop to $4 billion from the year-ago quarter, Intel remains committed to the AI market. They recently announced a collaboration with Swedish telecommunications equipment maker Ericsson to develop chips using their most advanced manufacturing technology. This move reflects the growing importance of advanced packaging for high-performance computing and artificial intelligence.
However, the focus on AI chips suitable for cloud computing has impacted Intel’s server chip market, as cloud majors like Microsoft and Alphabet increase their spending on data centers, primarily with Nvidia’s AI chips.
Despite these challenges, Intel is making strides to stay competitive in the AI domain. They have secured enough orders to sell at least $1 billion worth of their AI chips through 2024, indicating potential growth opportunities in this sector.
While Intel’s shares have risen by about 30% this year, they face fierce competition from other semiconductor companies like AMD and Nvidia. Nevertheless, the market remains optimistic, anticipating an industry recovery and looking forward to Intel’s performance in the coming quarters. With a forecasted adjusted gross margin of 43% in the third quarter and a continued focus on AI and advanced packaging, Intel is positioning itself to navigate the evolving semiconductor landscape successfully.