UPDATED 19:42 EST / APRIL 22 2021

INFRA

Strong PC chip sales help Intel beat forecasts, but data center revenue tanks

Chipmaking giant Intel Corp. beat market expectations on earnings and revenue today thanks to strong sales of personal computer chips as it delivered its first quarterly financial results under new Chief Executive Pat Gelsinger.

The company’s first-quarter sales were essentially flat, however, and its profit fell from the same period one year ago, sending its stock down more than 2% after-hours.

Intel reported a profit before certain costs such as stock compensation of $1.39 per share on revenue of $19.7 billion, down 1% from a year ago. Still, that easily beat analysts’ targets of earnings of $1.15 per share on revenue of $17.86 billion.

Gelsinger (pictured) said in a statement that the “strong” results were driven by a combination of “exceptional demand” for its products and “outstanding execution” by its team.

“The response to our new IDM 2.0 strategy has been extraordinary, our product roadmap is gaining momentum, and we’re rapidly progressing our plans with re-invigorated focus on innovation and execution,” the CEO said. “This is a pivotal year for Intel. We are setting our strategic foundation and investing to accelerate our trajectory and capitalize on the explosive growth in semiconductors that power our increasingly digital world.”

There can be no doubt that this is an important year for Intel, which has been hampered by a number of setbacks in its business and a growing challenge from rival chipmakers. The company has seen repeated delays in the development of its most advanced chips that will use a seven-nanometer manufacturing process, at a time when some rivals have already perfected their own.

Advanced Micro Devices Inc., for example, claims that its seven-nanometer silicon in both PCs and the data center surpasses Intel’s latest designs in a number of key performance metrics. Arm Ltd., another rival, recently introduced a new chip architecture that promises to deliver key advancements in artificial intelligence and security. Nvidia Corp. is increasing the pressure on Intel too, with the launch of its first data center central processing unit chip earlier this month.

At the same time, Intel has come under pressure from governments and other leaders to help tackle a problematic global shortage of computer processors that has affected numerous industries, including automakers and smartphone manufacturers.

Gelsinger, who took over at Intel in February, has responded by promising to invest $20 billion in new semiconductor manufacturing plants in the U.S. He also announced plans for Intel to become a contract chip manufacturer, using its foundries to make other companies’ chips as well as its own.

Further, Gelsinger has insisted that Intel’s seven-nanometer manufacturing process is progressing well, with the final process called taping for a compute module for its Meteor Lake chips expected in the second quarter.

Still, these efforts are all ongoing and will take time to bear fruit, and in the meantime investors will note that Intel’s quarterly sales and earnings were essentially flat with the same period one year ago, even as demand for microchips has accelerated massively.

Intel’s success this quarter was entirely thanks to its Client Computing Group, which makes chips for PCs and pulled in revenue of $10.6 billion in the quarter, up 8% from a year ago. The company said it saw record volumes in its chips for notebooks, up 54% year-over-year, and that total PC volumes rose 38%.

“2021 is shaping up to be the largest PC market ever,” Gelsinger told analysts in a conference call. “In fact, we shipped more notebook CPUs in Q1 than in any other quarter in our history. One PC in every home is no longer enough.”

Intel’s other main business is in selling high-performance chips for data centers, but sales during the quarter were a big disappointment. Intel’s Data Center Group reported revenue of $5.6 billion, down more than 20%, the result of what the company said was “cloud digestion” and the impact of COVID-19 on enterprise and government sales.

Gelsinger told analysts on the call that the dip in data center sales also stemmed from Intel recently launching its new Xeon server chips, codenamed Ice Lake. He said the industry is starting to emerge from a digestion phase and that Intel is already “starting to see signs that they want to start the next build phase in their cloud.”

“We are already shipping Ice Lake to more than 30 customers including major cloud providers communication service providers, enterprise, and [high performance computing] customers,” Gelsinger added. “We’re going to fight for every socket in the market.”

Meantime, Intel’s NSG memory business reported revenue of $1.1 billion, down 17%, while the Internet of Things Group revenue rose 4%, to $914 million. Intel’s Mobileye unit pulled in $377 million, up 48%, a record rise for that business. And the Programmable Solutions Group added $486 million, down 6%.

Despite much of the doom and gloom around Intel these days, Pund-IT Inc. analyst Charles King told SiliconANGLE that he is still bullish on its prospects and he believes the company can ride out the challenges it faces to emerge much stronger. He noted that Intel has faced similar circumstances in the past, often with the same adversaries. For example, he recalled that AMD’s launch of its Opteron data center chips way back in 2003, which many analysts said at the time could upend Intel’s dominance.

“In that instance, many believed that Intel was on the ropes and that AMD would inevitably become a significant player in server and storage chips,” King said. “That failed to occur both because of problems at AMD and due to energetic, innovative new leadership at Intel. In short, AMD gave Intel a chance to catch up and it paid the price.”

King noted, however, that the situation Intel faces is significantly different today, because AMD CEO Lisa Su and her team has done a much better job of building it up to become a more competitive and consistent rival to Intel. AMD’s challenge isn’t going away, but King said Intel has a strong leader of its own in Gelsinger, who understands the company on a far deeper level than most of its recent CEOs. He also knows what it takes to build a winning company, due to his time at VMware Inc., King noted.

“The bottom line is that while there will certainly be challenges ahead for Intel, Gelsinger and his team have a wealth of technical and financial assets to work with at Intel,” King said. “I hope that AMD and other would-be challengers to Intel have enjoyed the ride, because the road ahead for them looks considerably less smooth and predictable.”

Holger Mueller of Constellation Research Inc. told SiliconANGLE that Intel had kept its revenue constant due to strong PC sales as a result of the COVID-19 pandemic.

“But to really fire the growth engines Intel has to find a way to accelerate sales in the cloud data center, another pandemic winner that Intel unfortunately hasn’t been able to participate in,” Mueller said. “Let’s see what Gelsinger does to steady the ship. Most importantly, Intel has to get back to being good at what made it Intel in the first place, that is, making great chips.”

Analyst Patrick Moorhead of Moor Insights & Strategy was encouraged too, saying Intel delivered a very good quarter overall, taking advantage of the huge uptick in demand for more compute power.

“The data center numbers were planned to be down at these levels, but I think some industry analysts may be making some misallocations in their calculations,” Moorhead said. “CCG average selling prices are down due to a mix shift to the lower end of the pricing spectrum and the company very well could have increased share in the space. DCG average selling prices declined as well, which I attribute to a combination to mix shift and competitive pressure.”

Finally, Moorhead added, “I’m very pleased to see Mobileye keep blowing away its numbers as it did last quarter.”

Intel’s guidance was somewhat mixed. For the second quarter, it’s expecting revenue of $17.8 billion, which is just above Wall Street’s forecast of $17.55 billion. However, it missed analysts’ average estimate on earnings, guiding to $1.05 per share instead of the $1.09-per-share forecast, the result of investments in building more manufacturing capacity.

Intel did, however, raise its full-year guidance, saying it now expects $77 billion in total sales, well up from Wall Street’s $72.9 billion estimate.

Photo: SiliconANGLE

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