Intel Corp.’s long-awaited turnaround is in progress, now that the artificial intelligence data center boom is fueling demand for its chips.
The company’s revenue forecast shattered Wall Street’s expectations. Intel’s sales will be $15.8 billion to $16.8 billion in the third quarter, the company said Thursday. Even the low end of that range would easily clear the $15.1 billion average analyst estimate.
Chief Executive Officer Lip-Bu Tan, who took the reins last year, is working to position Intel as a key beneficiary of AI spending, even though it doesn’t lead in AI-specific chips. Though Nvidia Corp. remains the dominant provider of accelerator chips, which help develop and run artificial intelligence models, the industry’s broader buildout has fueled demand for a range of semiconductors. That includes Intel’s central processing units, or CPUs.
Sales in the data center segment soared 59% last quarter, more than double the pace of Intel’s overall revenue.
Intel shares were up more than 3% in premarket trading in New York on Friday. The stock had already more than doubled this year before the report, lifted by growing confidence in Intel’s comeback plan.
Intel will still need to deliver over the longer run, but the latest results are a good sign, said Jay Goldberg, an analyst at Seaport Group.
“You have the near-term momentum to carry you into the longer-term fundamentals,” Goldberg said in an interview on Bloomberg Television.
Intel is making progress in improving its production, Tan said. That’s helping it fill more orders and increasing the chances that other companies will choose to use Intel for outsourced production. Tan declined to discuss specific customer deals, beyond saying there are “multiple engagements,” and said the company should begin to show progress on that front by early next year.
The Santa Clara, California-based company is boosting its spending on equipment to ensure it can meet demand, both for its own chips and products that it manufactures for others.
Chief Financial Officer Dave Zinsner said the company, which had earlier planned to reduce capital spending from a year earlier, is now committed to raising its budget — something it will likely do next year as well. Spending will amount to about $20 billion this year, he said.
In the second quarter, revenue rose 25% to $16.1 billion. Profit was 42 cents a share, excluding some items. Analysts had estimated sales of $14.4 billion and earnings of 21 cents on average, according to data compiled by Bloomberg.
Tan has spent much of the last year improving Intel’s financial health. That’s included luring investments from the federal government, Nvidia and SoftBank Group Corp. Under an unconventional deal brokered by the White House in August, the US is now one of the chipmaker’s biggest backers.
The company is seen as pivotal to bringing chip manufacturing back to American soil, following decades of it shifting to Asia. Intel has plans for a massive manufacturing facility in Ohio, though the project has been repeatedly delayed.
Under Tan’s predecessors, Intel lost its manufacturing technology leadership and failed to capitalize on the AI frenzy. Heavy spending and declining market share led to billions of dollars in red ink.
Since then, a shift in the AI industry’s priorities has been a boon to Intel. Companies are less focused on training AI models and concentrating more on running the systems. That means the general-purpose microprocessor — Intel’s mainstay — is finding favor again.
Intel’s gross margin, the percentage of revenue remaining after deducting the cost of production, widened to 40.4% last quarter on an adjusted basis. That was up nearly 13 percentage points from a year earlier, but profitability remains well below the level when Intel was at the height of its powers. In those years, the chipmaker regularly reported margins north of 60%.
The Intel Foundry Services division — the company’s factory unit — had sales of $5.8 billion, up 31%. That unit currently relies almost exclusively on Intel product divisions for orders, though it is seeking outside customers. The PC chip division had revenue of $8.9 billion, and the data center unit posted sales of $6.3 billion.
In data centers, “the CPU is taking off,” Tan said in an interview. “Demand is outpacing our increasing supply, and so those are good problems to have.”
