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Intel Reports Estimate Beating Quarter But Forecast Lower Current Quarter Margins

Intel Reports Estimate Beating Quarter But Forecast Lower Current Quarter Margins
Despite reporting revenue and earnings per share that comfortably neat its own estimates as well as estimates of Wall Street, United States based chip maker Intel’s shares dropped 2 per cent as investors accorded more importance to the cautionary guidance on margins in the current quarter provided by the company’s CEO Pat Gelsinger, who presented his second earnings report at the helm of the company.
The expectation beating performance for the company in the second quarter was driven by strength in the business unit that makes semiconductor chips for PCs.
The company also reported a 33 per cent year on year rise in PC unit sales.
The company reported a 12 per cent rise in its earnings per share (EPS) at $1.28 (adjusted) beating expectations of $1.06 according to Refinitiv consensus estimates, for the quarter ending in June. Intel also reported a 2 per cent year over year jump in its revenues at $18.5 billion (adjusted) which also comfortably beat Refinitiv consensus estimates $17.8 billion.
Based on its strong second quarter performance, Intel also increased its guidance for 2021 by $1 billion to $73.5 billion in adjusted revenue as well as earnings-per-share for the entire year at $4.80.
The latest performance of Intel indicates that the surge in computer sales that had started during the Covid-19 pandemic could continue even though people are going back to offices and schools.
Intel however forecast non-GAAP gross margins of 55 per cent for the third quarter compared to margins of 59.2 per cent in the second quarter. Supply constraints as well as higher costs linked to building chips with a new process technology were to be blamed for the decreased margin, Intel said. Investments of $20 billion for improving manufacturing capabilities at the company’s factories - including at its two new facilities in Arizona, was also pledged by the chip maker.
A 6 per cent year on year in revenue was reported for Intel’s Client Computing Group, which includes chips for PCs, at $10.1 billion, which was a highlight of the results. At on the other hand however, the company said that there was a decrease in the average price of a PC chip that Intel sold during the quarter. 
Gelsinger said the company was also finding it difficult to cope up with the global chip shortage. The global chip shortages should “bottom out” in the second half of the year, Gelsinger said, but added that there could be supply constraints for chips even into the next year.
A 9 per cent year on year drop was reported for the sale of chips for data centers, the second largest segment for Intel, and reported at $6.5 billion. It was a “challenging competitive environment”, the company said, which suggested that the wining customers may be AMD’s server chips.
Intel has already announced a change in its business strategy and will now manufacture chips for other companies as well. Gelsinger has also announced plans for using contracted chip factories, called foundries, for manufacturing some of the processors that it sells under its own brand name.
“At this point, we would not say M&A is critical, but nor would we rule it out,” Gelsinger said, stating that smaller companies in the chip manufacturing business would eventually fall behind.

Christopher J. Mitchell

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