PC Market Slump Eases as Intel Posts Surprising Profit Growth

In a surprising turn of events, chip maker Intel (INTC.O) has defied expectations by posting a quarterly profit, signaling a potential easing of the slump in the PC market. This unexpected development has had a significant impact on the company’s outlook, with Intel now forecasting higher profits for the third quarter, surpassing Wall Street expectations. As a result, the company’s shares have surged by approximately 6%, reflecting investor optimism about Intel’s future prospects.

The PC market had been grappling with a downturn over the past year, leading to a buildup of inventories as consumers fulfilled their computing needs during the pandemic. However, recent data from Canalys indicates that the oversupply is starting to wane, with PC shipments experiencing a less severe decline of 11.5% in the June quarter compared to a staggering 30% drop in each of the preceding two quarters.

Amid the improving PC market conditions, Intel is anticipating improved profit margins in the second half of the year. The company’s margins had previously been nearly halved from all-time highs, but the latest forecast suggests a more positive outlook for the upcoming quarters.

Analysts attribute much of Intel’s success to a resurgence in desktop sales, which have rebounded significantly from a near-record low in the previous quarter. The boost in Intel’s shares has also led to a rise in its market value by almost $9 billion. This is a welcome development for the company, which had lagged behind rivals like Nvidia (NVDA.O), Advanced Micro Devices (AMD.O), and Broadcom (AVGO.O) in recent years.

Despite the positive results in desktop sales, Intel’s revenue in its largest segment, including personal computers, still experienced a 12% decline to $6.8 billion from $7.7 billion in the same period last year. However, the company’s foundry business, which manufactures chips for other companies, saw some growth in revenue due to “advanced layout,” a process that enables Intel to create more powerful chips by combining parts made by other manufacturers.

Intel is eyeing further opportunities in the advanced packaging market, which is instrumental in enabling high-performance computing and artificial intelligence. The company’s collaboration with Ericsson on a chip utilizing cutting-edge manufacturing technology underlines its commitment to exploring AI’s vast potential.

However, Intel’s data center and artificial intelligence sales experienced a 15% decline to $4 billion from $4.7 billion in the year-ago quarter. The increasing demand for AI computing in the cloud has affected the server chip market for Intel, with cloud majors like Microsoft (MSFT.O) and Alphabet turning to Nvidia (NVDA.O) for AI-related chips.

While Intel’s recent performance has surpassed Wall Street estimates, the company continues to face challenges in retaining market share in server CPUs and staying relevant in AI. Nevertheless, the company’s adjusted earnings per share forecast for the current quarter of 20 cents exceeds analysts’ predictions of 16 cents, instilling hope in investors.

Intel’s positive outlook for the third quarter, including adjusted revenue projections of $12.9 billion to $13.9 billion and an adjusted gross margin of 43%, has further bolstered investor confidence. The company’s shares have risen about 30% this year, in anticipation of an industry-wide recovery, despite trailing behind the 50% surge in the Philadelphia SE Semiconductor (.SOX) index.

As the semiconductor industry continues to navigate the ever-changing technological landscape, Intel’s quarterly profit and positive outlook serve as indicators of potential growth and recovery in the coming months. As the company refines its strategies and explores new opportunities in AI and advanced packaging, the future may hold even more promising prospects for Intel’s continued success in the competitive semiconductor market.