Intel Corp.’s stock lost almost 2% in late trading today as investors digested an eventful second-quarter earnings report and analyst call today.

The American chip giant actually performed well, reporting revenue and profit ahead of both its own and Wall Street’s forecast thanks to strong sales of chips for personal computers. It also raised its end-of-year guidance.

The company reported a profit before certain costs such as stock compensation of $1.28 per share on revenue of $18.5 billion, up 2% from a year ago. That wasn’t massive growth, but it did come in well ahead of Wall Street’s forecast of $1.06 per share in profit and $17.8 billion in revenue.

The highlight was Intel’s Client Computing Group, which primarily sells chips for personal computers. Revenue for that unit, which has benefited from a wave of COVID-19-related sales, rose 6% from a year ago, to $10.1 billion. The performance could have been better though, as Intel Chief Executive Pat Gelsinger (pictured) said on a call that the average price it received per PC chip decreased during the quarter.

Still, the CEO believes the prospects for the Client Computing Group remain good. He told investors that he believes the COVID-inspired boom in PC sales will continue even as people get back to work and school.

“PC density or PCs per household is increasing as COVID has irreversibly changed the way we work, learn, connect and care for each other,” Gesinger said. “For example, even as we emerge from COVID, we’re seeing many companies opt for hybrid work models versus full return to the office.”

Gelsinger added that replacement cycles are getting shorter too, with factors such as the shift to notebooks, the deployment of new operating systems, and better experiences such as Intel’s new Evo platform all expected to push people to buy new PCs.

Elsewhere on the balance sheet, Intel’s Data Center Group saw sales of $6.5 billion in the quarter, down 9% from a year ago. The company said it was seeing a “challenging competitive environment.” That suggests Intel may well be losing customers to rivals such as Advanced Micro Devices Inc.

Analyst Holger Mueller of Constellation Research Inc. praised Gelsinger for his immediate impact and said it’s good to see the company growing again. “But the trouble child remains data center revenue, which shrank yet again,” he said. “It’s unlikely Intel can stay on a long-term growth trajectory without data center revenue so more work needs to be done.”

A better performance came from Intel’s autonomous driving unit Mobileye. There, sales jumped 124% from a year ago, to $327 million.That’s still just a tiny percentage of Intel’s overall revenue, but officials have hopes that it can eventually become a major supplier in the automotive industry. The Internet of Things group also did well, with sales rising 47%, to $984 million.

“Intel’s results testify to the value of a diversified business,” said Charles King of Pund-IT Inc. “Despite the significant drop in Data Center Group revenues, solid or substantial results by the Client Computing, IoT and MobileEye groups enabled the company to deliver decent results.”

Gelsinger has stated his intention to diversify Intel’s business even further in the months and years to come. When he took over the company’s hot seat earlier this year, he announced his plans for Intel to become a contract manufacturer for other companies, for example. It will also contract some third-party chip fabs to make some of its processors.

Gelsinger’s plans have hit some roadblocks, though, with the company recently delaying the launch of its next-generation Sapphire Rapids server chips until early 2022. That suggests Intel is still struggling to keep up with competitors. The company has in the meantime announced plans to restructure its Data Center group in a move that saw long-time server chip boss Navin Shenoy leave.

In today’s call Gelsinger told analysts that Intel may be considering acquisitions to accelerate his plan. He didn’t say where or when, but it was recently reported that Intel was negotiating with Mubadala Investment Co., an investment arm of the Abu Dhabi government, over a possible acquisition of GlobalFoundries Inc.

Intel is also said to be interested in a company called SiFive Inc., which develops chips based on the open-source RISC-V technology that is an alternative to the ARM instruction set used in most mobile chips.

“At this point, we would not say M&A is critical, but nor would we rule it out,” Gelsinger said when asked about the possibility.

Gelsinger also addressed questions over the ongoing global semiconductor shortage that has crippled the automotive and other industries. He told analysts that he expects chip shortages to “bottom out” in the second half of this year, though he warned that supply problems could remain until 2023.

King said that though people may be disappointed by this admission, it’s an entirely understandable reality check by Gelsinger. “The continuing pandemic, along with drops in vaccination numbers and the rise of COVID variants have injected uncertainties into numerous businesses and markets,” he said. “Acknowledging and addressing difficult realities is the mark of a sensible, sensitive leader.”

“Intel had a great second quarter as it beat estimates for revenue, gross margin and profits,” said Patrick Moorhead of Moor Insights & Strategy. “It also raised revenue expectations by $1 billion for the year. Investors negatively reacted after the bell stemming from concerns about profits in the second half of the year. I’m not concerned as I believe these are supply chain issues, more 10-nanometer [chipmaking process] products, and a seven-nanometer start, which does temporarily increase costs.”

Looking ahead, Intel said it’s expecting third-quarter earnings of $1.10 per share on revenue of $18.2 billion. It also raised its full-year revenue guidance by a billion dollars. The company now expects full-year sales of $73.5 billion. Both projections are ahead of Wall Street’s expectations.

Photo: SiliconANGLE