In the most recent quarter, Intel managed to exceed its own expectations in terms of revenue, profit margin and earnings per share. In the client segment, revenue grew 16% quarter-over-quarter, exceeding management expectations for the third quarter in a row. It was also better than expected in the server segment. After the close, Intel shares rose 7.7%.
On a year-over-year basis, Intel’s third-quarter results weren’t very encouraging. The company’s total revenue fell 8% year-over-year to $14.2 billion during the period. In the customer segment, it fell 3% to $7.9 billion, which still accounts for more than half of the company’s total revenue. The company’s net income fell several times, from $1.02 billion to $297 million. The company’s revenue fell for the seventh consecutive quarter.
Intel CEO Patrick Gelsinger expressed hope at the reporting conference that PC market capacity will rise again to 270 million units per year by the end of this year. In his opinion, refusing to support Windows 10 will, in the longer term, allow this number to return to the level of 300 million PCs sold per year.
According to David Zinsner, the company’s CFO, Intel’s client solutions segment generated 16% more revenue ($7.9 billion) last quarter than in the second quarter, although it fell 3% year-over-year. Customer inventories have reached a normal level. This Intel division’s operating income doubled from the previous quarter to $2.1 billion, with average selling prices increasing due to demand for branded components in the commercial and gaming segments.
Intel management reminded that it will introduce Meteor Lake client processors and Emerald Rapids server processors on December 14 this year. The development of five new technological processes in four years is becoming increasingly realistic and many key stages in the implementation of this ambitious program have already been completed since it began two and a half years ago. In total, the company has already produced 150 million components made using Intel 7 technology. Alder Lake, Raptor Lake and Sapphire Rapids processors are already on the market, and Emerald Rapids began shipping this week. Intel shipped its millionth Sapphire Rapids unit last quarter and is on track to ship its two millionth next month.
Shipping of Meteor Lake processors with Intel 4 technology began in the third quarter. According to Gelsinger, the new technical process at the current stage enables an increase in the efficiency of capital use by 20% compared to the time when equipment for EUV lithography was just coming into circulation. Intel’s EUV production is ramping up in Oregon and Ireland.
The first products manufactured using Intel 3 technology will reach the pre-production stage by the end of this year. In fact, samples of Sierra Forest server processors are already being mass-produced; Digital projects from Granite Rapids are also ready and are being produced at Intel factories in anticipation of the transition to mass production.
The first products with Intel 20A technology will be ready for series production in the first half of next year. Examples of Arrow Lake client processors are already running on Windows and demonstrate “superior functionality,” Gelsinger said. The first products manufactured with Intel 18A technology will arrive on the company’s production lines in the first quarter of 2024 and will be ready for mass production in the second half of the same year. In addition to the Clearwater Forest server processors and Panther Lake client processors, Intel’s 18A process technology will spawn several third-party chips. Next year, Arrow Lake and Lunar Lake processors will enter the client market, and Panther Lake chips made using Intel 18A process technology will appear in the client segment no earlier than 2025.
Gelsinger added that Intel already has large customers not only for the 18A process technology, but also for the Intel 3 process, which is closer to the series production stage. The company was also able to secure a contract with two additional customers who will produce components developed by them using Intel 18A technology. Boeing, Northrop Grumman and Ericsson have already been mentioned in this context. In an interview Reuters Gelsinger explained that the company already has three confirmed customers heading towards Intel 18A, one of whom has already made a large upfront payment. Another Intel 18A customer will confirm its intentions in this area in writing this year, as the CEO explained.
Customer interest in Intel’s chip packaging services is also growing, partly contributing to the company’s contract division’s third-quarter revenue quadrupling year-over-year to $311 million, but still ending the period at a high rate due to high business volume Operating loss of $86 million included development costs. Intel has already attracted two developers of computing accelerators for artificial intelligence systems to its chip packaging services, and there are also customers currently in active negotiations with the company.
In the server segment, Intel’s revenue fell 10% year over year to $3.8 billion, but was above the company’s own expectations. The seasonal demand recovery in this segment was stronger than expected, with Xeon processor sales actually increasing sequentially. The popularity of Intel’s new product generations in this market segment has caused Xeon’s average selling price to reach a record high. Intel’s server division returned to operating profit in the third quarter, albeit with a modest $71 million. Operating profit increased 151%. According to Gelsinger, the demand in the field of artificial intelligence is not limited only to specialized accelerators such as NVIDIA products, and in this context the industry’s need for central processing units is growing. In addition, Intel will also develop special functions at the client processor level and equip them with neural network acceleration units (NPU).
The Network Components and Peripheral Computing (NEX) division reported a 32% year-over-year decline in revenue to $1.5 billion and operating profit fell 91%. The market is still suffering from low demand and maintaining increased product inventories. The Mobileye subsidiary reported 18% year-over-year revenue growth to $530 million in the third quarter as demand increased for its EyeQ family of chips for driver assistance systems. The division’s operating profit rose 20% to $170 million, but the future prospects of this Israeli Intel division are clouded by the unfolding military conflict in the region. The Intel company’s activities in Israel have not been affected by recent events in the region.
For the fourth quarter, Intel expects revenue between $14.6 billion and $15.6 billion, up 8% year-over-year, and that profit margins will increase 2.7 percentage points year-over-year to 46.5% become. In the third quarter, the profit margin did not exceed 45.8%, remaining at the level of the same period last year, but at the same time exceeding Intel’s own July forecast by 2.8 percentage points.
By the end of this year, Intel plans to cut costs by $3 billion. This will be achieved, among other things, by reducing the number of employees, which has already fallen from 131,500 in the previous year to 120,300 people. Operating costs were reduced by 15% compared to the same period last year. During the reporting, Gelsinger was able to express that he does not see a serious threat in potential processors with Arm-compatible architecture that NVIDIA and AMD can develop for the customer segment of the market. After all, Intel management has previously expressed its willingness to release processors with Arm-compatible architecture for its customers, but the company is clearly not ready to help serious competitors on this scale.