Intel’s Strong Q3 Earnings Propel Stock Up in After-Hours Trading

Semiconductor company Intel has reported impressive third-quarter earnings that exceeded expectations for both profit and sales. This announcement led to a significant boost in Intel’s stock price during after-hours trading, with shares rising by approximately 7%.

For the upcoming fourth quarter, Intel has set its expectations at earnings of 23 cents per share (adjusted) with revenue projected to range between $14.6 billion and $15.6 billion. These figures contrast with LSEG’s estimates of 32 cents per share on $14.31 billion in sales.

The third-quarter results revealed a net income of $297 million, equivalent to 7 cents per share. In the same quarter last year, Intel’s net income was $1.02 billion, or 25 cents per share. The company maintained a gross margin of 45.8% for the quarter, remaining consistent with the previous year.

Although Intel reported an 8% decline in revenue compared to the previous year, totalling $15.33 billion, it optimistically assured investors of an anticipated growth in revenue for the current quarter. This marks a significant moment, as it’s the seventh consecutive quarter of declining sales.

CEO Pat Gelsinger expressed the company’s commitment to cost-cutting by approximately $3 billion throughout the year. Chief Financial Officer David Zinsner stated that Intel’s earnings per share benefited from a disciplined approach to expenses, with operating expenses declining by 15% compared to the previous year. Notably, Intel’s workforce saw a reduction from 131,500 employees to 120,300.

Intel’s various business units performed as follows:

• Sales in Intel’s Client Computing group, encompassing laptop and PC processor shipments, experienced a 3% decrease, reaching $7.9 billion.
• Intel’s Data Center and AI division, which provides server chips, encountered a 10% sales decline, amounting to $3.8 billion. This division cited competitive pressures and a smaller market for server processors.
• Mobileye, a publicly traded Intel subsidiary specializing in self-driving car components, marked significant growth, with sales increasing by 18% to $530 million.
• Intel’s foundry services, a growing but small segment of the company’s chip-manufacturing business, displayed substantial growth of nearly 300% from the previous year, reaching $311 million in revenue. Intel disclosed a major customer’s commitment to utilizing its capacity, including a prepayment.
• Intel’s network and edge division, which sells networking components, reported a 32% sales decrease, amounting to $1.5 billion.

Additionally, Intel recently announced its plans to treat its programmable chip unit as a stand-alone business and intends to list it on public markets within two years. This unit, currently part of Intel’s Data Center and AI group, experienced a sequential decline in sales during the quarter, mainly due to inventory burn.

Intel informed investors of its belief that its chips have significant potential for artificial intelligence applications, particularly in running models on local devices as opposed to the cloud. While acknowledging that some server customers have shifted investments away from Intel’s central processors to AI chips like those produced by Nvidia, CEO Pat Gelsinger expressed optimism about signs of normalization as they enter the fourth quarter.

Although Nvidia and AMD are reportedly developing Arm-based chips to compete with Intel in the PC market, Gelsinger emphasized that Arm chips have not historically made significant inroads in the PC business. Consequently, Intel perceives an opportunity to manufacture Arm PC chips and believes that they may not pose a significant threat to their overall market position.

Intel remains on track to catch up with Taiwan Semiconductor Manufacturing Co.’s chipmaking technology by 2025, in line with their plan known as “five nodes in four years.” This ambitious journey, which began about two and a half years ago, aims to enhance Intel’s technological capabilities.

As CEO Gelsinger stated, “While many thought our ambitions were a bit audacious when we began our ‘five nodes in four years’ journey, we have an increasing line of sight towards achieving our goal.”