Intel Jumps After Upbeat Forecast Fuels Optimism About Chips - Yahoo Finance

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(Bloomberg) -- Intel Corp. shares gained after the chipmaker gave a bullish revenue forecast for the current period, indicating that demand for computer components is improving and a long-awaited comeback may be underway.

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Sales in the third quarter will be as much as $13.9 billion, the company said Thursday in a statement, compared with an average analyst estimate of $13.3 billion. Minus certain items, Intel expects to post earnings of 20 cents a share, compared with a 13-cent profit projection.

The shares rose about 7% in late trading after the report was released.

The outlook suggests Intel has turned a corner after sluggish demand for personal computer chips battered its business. Management had promised that the second half of the year would show improvement, and now investors are seeing fresh evidence of that. But the company remains in the early stages of a turnaround, which hinges on reestablishing Intel’s once-bulletproof lead in chip technology.

Though Intel stock has gained 31% this year through Thursday’s close, that underperformed a rally by chip-related shares. The Philadelphia Stock Exchange Semiconductor Index is up 49% in 2023.

Intel predicted that its gross margin — the portion of sales remaining after deducting the cost of production — would be 43% in the third quarter. That compares with an estimate of just under 41%. The company, one of the few in the industry that doesn’t outsource production, has been running its plants at less than full capacity. That’s helped reduce the amount of supply in a market where customers already have too much inventory.

In the second quarter, Intel reported a surprise profit of 13 cents a share, excluding some items. The compared with a loss of 4 cents predicted by analysts. Revenue fell 15% to $12.9 billion, but that beat the projection of about $12 billion.

Still, Intel remains far from its heyday. The company had quarterly sales of more than $20 billion as recently as 2021.

Read More: Intel’s Bull Case Is That Things Can’t Get Worse

The company’s factory network, once the envy of the chip business, is crucial to whether Intel can regain its dominance. Chief Executive Officer Pat Gelsinger has promised that he will have the best production in the industry again by 2025 — and will even open those facilities up for rivals to use on a contract basis. In the meantime, the costly push to catch up with industry leader Taiwan Semiconductor Manufacturing Co. is weighing on profit.

Intel’s margins remain nowhere near the 60% level that it maintained for years, when it had dominant market share and productive factories. Chipmaking technology advances allow companies to improve their economics and allow chips to handle ever-increasing amounts of information.

Investors have yet to fully buy into Gelsinger’s turnaround plan. Rivals such as Nvidia Corp. and Advanced Micro Devices Inc. have seen their stocks surge more dramatically, helped by the rush to use their chips in new artificial intelligence systems. Intel is seen as a relative laggard in that segment.

Client computing, Intel’s PC chip business, generated $6.78 billion in revenue last quarter. That compares with an estimate of $6.1 billion. Data-center sales were $4 billion, versus an average projection of $3.82 billion.

(Updates with gross margin in sixth paragraph.)