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Intel (INTC) reported stronger-than-expected revenue for the third quarter, a positive signal indicating a recovery in demand for its core x86 processors used in personal computers. The news spurred a 6% jump in the company’s stock price during extended trading.
Key financial highlights from Intel’s third-quarter performance, compared against LSEG consensus estimates:
- Revenue: $13.65 billion, exceeding the estimated $13.14 billion.
- EPS: 23 cents, adjusted.
Notably, Intel recorded a per-share loss of 37 cents this quarter. This accounts for shares held in escrow, slated to be released to the U.S. government as part of an $8.9 billion investment. This investment was negotiated with the U.S. government, involving the purchase of 433.3 million shares at $20.47 each.
Looking ahead, Intel anticipates fourth-quarter revenue to be approximately $13.3 billion at the midpoint, with adjusted earnings per share projected at 8 cents. These figures align closely with analyst expectations of $13.37 billion in revenue and 8 cents per share earnings. It’s important to note that Intel’s outlook excludes any impact of a recent sale of its Altera subsidiary.
Intel’s third-quarter net income reached $4.1 billion, translating to 90 cents per share, a significant turnaround from the $16.6 billion net loss reported in the same quarter last year. This quarter, Intel received $5.7 billion from the U.S. government.
The company acknowledged the novelty of the accounting treatment for such transactions, cautioning investors. The company has engaged with the Securities and Exchange Commission (SEC) to secure approval for its accounting approach regarding the government’s stake, but resolution is pending. Intel warns investors that it may be subject to future revisions.
“We remain steadfast in our commitment to realize the vision of the U.S. administration to restore semiconductor production and are proud to welcome the U.S. government as a critical partner in our endeavors,” CEO Tan stated during the earnings call.
Furthermore, Intel secured a $5 billion investment from Nvidia in September. The collaboration between the two companies aims to integrate Intel’s central processors (CPUs) with Nvidia’s artificial intelligence graphics processors, which currently dominate the AI chip market with 90% share.
Intel reported that demand for its chips exceeded supply, a trend projected to continue into the following year.
The products group reported $12.7 billion in sales, marking a 3% increase year-over-year. Within this, the Client Computing Group, responsible for chips used in PCs and laptops, contributed $8.5 billion. However, data center CPU sales reached $4.1 billion, showing a 1% decline year-over-year. Intel hopes its partnership with Nvidia will rejuvenate growth in its data center CPU business.
Investors are closely monitoring Intel Foundry, the division that manufactures chips for external companies. This endeavor requires substantial capital investment of $100 billion and is still in the process of securing major customers. Intel announced that it initiated production of its most advanced chips in Arizona during the quarter.
Intel’s foundry division reported $4.2 billion in sales for the quarter, showing a 2% decrease year-over-year. Notably, all of this revenue was driven by Intel utilizing the foundry to manufacture its own chips, according to the company.
Operational restructuring continues, with Intel reporting a workforce of 88,400 employees, down from 124,100 at the same time last year. This points to ongoing efforts by Intel to streamline operations and reduce costs in the face of evolving market demands and competitive pressures.
The financial performance underscores a complex landscape for Intel. While the PC market is showing signs of recovery, competitive pressures remain intense, particularly from ARM-based architectures gaining traction in laptops. Furthermore, Intel’s ambitious foundry business faces significant hurdles in attracting external clients and achieving profitability. The company’s strategic partnership with Nvidia signals a shift towards embracing heterogeneous computing and capitalizing on the burgeoning AI market. However, the success of this partnership hinges on seamless integration and the ability to deliver compelling value propositions to customers.
