Intel Corp. shares surged in the extended session Thursday after the chip maker posted a surprise profit, but while data-center sales came in better than expected, a larger beat in PC product sales drove margin improvement.
Intel
INTC,
shares surged around 8% after hours, following a 0.6% rise to close the regular session at $34.55.
The company reported second-quarter net income of $1.48 billion, or 35 cents a share, versus a loss of $454 million, or 11 cents a share, in the year-ago period. After adjusting for restructuring charges and other items, Intel reported 13 cents a share, versus net income of 28 cents a share a year ago.
Revenue fell to $12.95 billion from $15.32 billion in the year-ago period, and adjusted gross margins came in at 39.8%, the company said.
Intel had forecast an adjusted second-quarter loss of 4 cents a share on revenue of about $11.5 billion to $12.5 billion for the current period, and adjusted gross margins of about 33.2% for the quarter.
Analysts surveyed by FactSet, on average, expected a loss of 4 cents a share on revenue of $12.12 billion.
The margin beat was “largely a function of revenue,” Intel Chief Financial Officer David Zinsner told analysts on a conference call, and that revenue beat was much more pronounced in Intel client, or PC, business than it was data center.
“We had obviously beat revenue significantly, and we’ve got a good follow-through in the fixed-cost nature of our business, and so that really was what helped us outperform significantly on the gross-margin side in the second quarter,” Zinsner told analysts.
Intel posted PC-group sales of $6.8 billion and data-center sales of $4 billion, while analysts surveyed by FactSet had forecast $6.08 billion and $3.8 billion, respectively.
Before the conference call, Edward Jones analyst Logan Purk told MarketWatch in an interview following the report that most of the improvement in Intel’s gross margin came from the unexpected amount of growth in the PC business.
“The magnitude of client computing growth, and how the PC market is recovering faster than anticipated,” came as a surprise, Purk told MarketWatch. The analyst, who has a hold rating on Intel, said he expects sequential single-digit improvement in data center going forward.
Still, on the call, Intel Chief Executive Pat Gelsinger hammered home the point that Intel was wholeheartedly going after the AI market, which is expected to be dominated by Nvidia Corp.
NVDA,
and to a lesser extent, by Advanced Micro Devices Inc.
AMD,
which reports earnings on Tuesday.
“We see AI being infused in everything and there’s going to be AI chips for the edge, AI chips for the communications infrastructure, AI chips for sensing devices, for automotive devices, and we see opportunities for us both as a product provider and as a foundry and technology provider across that spectrum,” Gelsinger said.
Meanwhile, network and edge sales came in at $1.4 billion, while analysts called for $1.48 billion, and foundry services revenue rose to $232 million for the quarter, while Wall Street looked for $149.2 million.
“In the third quarter, we do obviously at the midpoint see revenue growth sequentially and so that will be helpful in terms of gross margin,” Zinsner told analysts on the call. “We expect, again, pretty good follow-through as we get that incremental revenue.”
Intel forecast third-quarter earnings of about 20 cents a share on revenue of about $12.9 billion to $13.9 billion and adjusted gross margins of about 43% for the current quarter. Analysts surveyed by FactSet had forecast third-quarter adjusted earnings of 16 cents a share on revenue of $13.22 billion.
Year to date, Intel shares have gained nearly 31%, while the PHLX Semiconductor Index
SOX,
has surged 49%, the S&P 500
SPX,
has grown 18%, the Nasdaq Composite
COMP,
has gained 34% and the Dow Jones Industrial Average
DJIA,
is up more than 6%.
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