Intel Returns to Profit as PC Rebound Lifts Chip Demand

Intel shares soared Thursday as a resurgent personal-computer market helped it bounce back from two quarters of record losses and it forecast new demand from the artificial-intelligence boom.

The $1.5 billion profit defied analysts’ expectations of another loss. It came after the $2.76 billion shortfall that Intel reported the previous quarter, the worst ever recorded for the storied chip maker.

Chief Executive Pat Gelsinger said the company was on track with an ambitious turnaround plan articulated when he took the helm more than two years ago. He said demand for AI was poised to boost PC and data-center divisions that have languished in recent quarters.

Intel’s revenue rose in the second quarter compared with the previous one, reaching $12.9 billion and exceeding Wall Street forecasts. Revenue was 15% lower than during the same quarter a year earlier.

Intel shares rose 8% in after-hours trading following its results announcement.

The company forecast $12.9 billion to $13.9 billion of revenue in its current quarter, ahead of Wall Street estimates.

Intel has been stung by a sharp fall in sales of the PCs that drive a large share of its revenue. Sales boomed during the depths of the pandemic, when people rushed to buy electronics to work and learn from home. That reversed last year as people reverted to old routines, leading to a glut of chips on manufacturers’ shelves.

The PC market has been showing signs of recovering in recent months as manufacturers run through chip inventories and make new orders. PC shipments declined 13.4% in the second quarter, according to International Data Corp., a more-modest fall than the 29% rout in the first quarter.

Gelsinger said in an interview that the company believed it gained market share in PC chips during the quarter and that the inventory situation had improved.

“The PC as a category is now healthy again,” he said.

Sales in Intel’s PC-chip division fell by 12% in the second quarter, the company said. But the $6.8 billion in sales topped the $5.8 billion for that division in the first quarter.

Gelsinger suggested the future could be brighter for the division as interest in AI drives sales of PCs starting next year, with tools such as real-time language translation and productivity software add-ons enabled by a new generation of PC chips tuned for AI. 

Chip makers have begun to profit from an explosion in interest in so-called generative AI systems that can produce sophisticated text and images with minimal prompting.

Large tech companies are investing heavily in AI capabilities and in the chips that underlie them. Microsoft reported sluggish sales growth Tuesday but highlighted AI as a driver of its business going forward. Google, whose parent company, Alphabet, also reported results this week, is plowing money into an AI system.

Intel’s central processing units are widely used in AI computation, and it offers graphics-processing units and other specialist AI chips. Intel has a pipeline of orders for more than $1 billion of its AI accelerator chips, Gelsinger said.

For now, though, he said big data-center operators are focusing their initial investments on the AI chips

“We do see that as a near-term depressor of CPU demand,” Gelsinger said, adding he expected purchases to shift back toward CPUs over time, creating opportunities for Intel.

Beyond the AI challenge, Intel faces growing competition in data-enter chips from perennial rival Advanced Micro Devices. It had delayed the launch of its most advanced data center processors, which hit the market early this year.

Sales in the company’s data-center and AI division fell 15% in the second quarter to $4 billion.

Amid the market struggles, Gelsinger has announced layoffs and promised to slash costs by $3 billion this year and boost cuts to as much as $10 billion annually by the end of 2025.

At the same time, the chief executive is attempting a turnaround that entails huge investments in new chip-making plants and a bid to catch up with rivals in South Korea and Taiwan in making the fastest-calculating chips with the smallest-possible transistors.

The company is seeking government grants under the $53 billion CHIPS Act, passed last year, to help finance its ambitions in the U.S. The company has submitted its application for funding for an expansion of its manufacturing facilities in Arizona and plans to submit three more proposals this quarter, Gelsinger said.

Central to the turnaround is a new business that makes chips on contract for others. The so-called foundry business has struggled to win large customers such as Qualcomm and Nvidia in its first two years, although it is working with Taiwan’s MediaTek and U.S. hard-drive maker Seagate. The company said this week that it signed a deal to make chips for telecom equipment maker Ericsson using its most advanced chip-making technology.

Write to Asa Fitch at [email protected]