© Reuters. In this illustration taken March 6, 2023, a smartphone with the Intel logo is placed on a computer motherboard. REUTERS/Dado Ruvic/Illustration/File photo
By Chavi Mehta, Max A. Cherney and Stephen Nellis
(Reuters) -Intel on Thursday forecast fourth-quarter revenue and margins above Wall Street estimates, optimistic about a healthy rebound in personal computer sales, an improvement in its data center business and a growing list of clients seeking their manufacturing services.
While Intel (NASDAQ:) remains under strong competitive pressure from Nvidia (NASDAQ:) in the data center chip market, the easing of the PC decline and the stabilization of its server chip business helped to increase gross margins faster than analysts expected. Company executives had warned that margins could increase significantly well into next year.
Shares of the Santa Clara, California-based company rose 8% after the closing bell.
The company has also landed three customers for its chip contract manufacturing business, and Chief Executive Pat Gelsinger told Reuters he hopes to close a deal for a fourth customer before the end of the year.
The drop in global PC shipments narrowed to 7% in the third quarter after double-digit percentage drops earlier this year, and the market will return to growth during the highly anticipated holiday season, analysts at the research firm said. Canalys.
The company forecast adjusted revenue for the current quarter of between $14.6 billion and $15.6 billion, compared with an estimate of $14.35 billion based on LSEG data.
The company expects fourth-quarter adjusted earnings per share of about 44 cents, above analysts’ estimate of 32 cents.
Heavy investments in manufacturing to support Gelsinger’s turnaround plans have taken a toll on the company’s gross margin, which dropped to around 30 in the second quarter from more than 60% in 2020. Adjusted gross margin hit 45, 8% in the third quarter, compared to estimates of 42.7% according to LSEG data.
Gelsinger said in an interview that Intel has a fourth foundry customer for its advanced manufacturing process called “18A,” which it plans to begin production in late 2024 and will offer to customers through its Intel Foundry Services business.
“We now have three clients committed to 18A and expect to successfully complete at least one more this quarter,” Gelsinger said.
He declined to say how many chips Intel will make for those companies, but said the first is prepaid and is “a very important customer.”
“The next two are very significant, not as big as the first one,” Gelsinger added in an interview. “But now we have engagements with essentially the who’s who of foundry customers.”
In a conference call with analysts, Gelsinger also said that Intel is in talks with six new customers for its advanced packaging business.
“These victories are blows against TSMC,” said Glenn O’Donnell, research director at Forrester, referring to Taiwan Semiconductor Manufacturing Co, the world’s largest chipmaker.
Intel reported adjusted earnings of 41 cents per share in the third quarter, compared with an estimate of 22 cents based on LSEG data. Revenue fell 8% to $14.2 billion.
Revenue in the client segment, which houses Intel’s PC business, fell 3% to $7.9 billion. Asked about potential competition from PC chips from Nvidia, which Reuters reported this week plans to enter the market as early as 2025, Gelsinger said on the conference call that “we don’t see them as potentially that significant overall.”
But he added that Arm-based chips for PCs could be “a huge opportunity for our foundry business.”
Chief Financial Officer David Zinsner said Intel expects a slowdown in sales of its programmable chips in the fourth quarter, as well as several quarters of slow sales next year. Intel said earlier this month that it plans to spin off that business in an initial public offering.
Sales at its data center business, which also houses its ai chip division, fell 10% to $3.8 billion. But Gelsinger said the company has seen a surge in interest for its “Gaudi” ai chips, and that demand now outstrips supply.
Gelsinger said in a conference call that Intel’s factories in Israel, which is embroiled in a war with Hamas after an attack earlier this month, “are not missing any commitments” despite the conflict.
