Intel Corp. bounced back from its biggest-ever loss three months ago, beating analyst expectations and returning to profitability as it delivered its second-quarter earnings results. The results sent its stock up more than 7% in extended trading.

The company today posted a net profit of $1.5 billion for the quarter, with earnings before certain costs coming to 13 cents per share. Revenue for the period dropped 15% from a year earlier to $12.9 billion. The results were better than expected, with analysts forecasting a loss of three cents per share on sales of just $12.13 billion.

Intel had further good news for investors, saying it’s looking for earnings of 20 cents per share on revenue of $13.4 billion for the third quarter, ahead of the consensus estimate of 16 cents per share on $13.23 billion in sales.

Intel’s gross margin was nearly 40% on an adjusted basis, topping the company’s previous forecast of 37.5%. Investors want to see gross margins expand even as the company invests heavily in manufacturing capability.

There’s no getting away from the fact this is the sixth straight quarter of declining sales for Intel. Chief Executive Pat Gelsinger (pictured) was still in an upbeat mood, though he often is. In a statement, he said the results exceeded the high end of the company’s own guidance as its foundry business gathered significant momentum.

On a conference call with analysts, Gelsinger admitted there is still “persistent weakness” in every segment of its business, and that this won’t change until closer to the end of the year. Server chip sales aren’t expected to recover until the fourth quarter, he said.

One of the problems Intel faces is that cloud infrastructure providers are more focused on buying graphics processing units to power artificial intelligence. That means they’re spending less on Intel’s hardware.

Gelsinger took over the hot seat at Intel in 2021 on a mission to revive its fortunes after several years spent in the doldrums thanks to years of manufacturing delays. Intel also faces increased competition from Advanced Micro Devices Inc., whose silicon is every bit as good as Intel’s these days. AMD has gained market share at the expense of Intel.

To transform the company, Gelsinger previously announced a $3 billion cost-savings plan that will be implemented in 2023. Today, Chief Financial Officer David Zinsner said the company was making good progress on that initiative. “We have now exited nine lines of business since Gelsinger rejoined the company, with a combined annual savings of more than $1.7 billion,” he revealed.

Intel’s client computing business, which covers central processing units for laptops and desktops, reported revenue of $6.8 billion in the quarter, down 12% from a year earlier. The results reflect an overall slump in the personal computer market, where sales have tumbled as the COVID-19 pandemic that boosted work-from-home PC sales came to an end. Meanwhile, the Data Center and AI segment, which covers server chip sales, posted a 15% decline in sales to $4 billion.

Intel’s other business segments are much smaller and include the Network and Edge division, which produces chips for the telecommunications industry and did $1.4 billion in sales, down 38%. As for Mobileye, a publicly traded subsidiary focused on automotive chips, it delivered $454 million in sales, down 1%.

Finally, Intel’s nascent Foundry Service business reported revenue of $232 million. Intel has high hopes for this business, which produces chips for other chipmakers that lack their own chipmaking factories. The company has stated that it plans to match Taiwan Semiconductor Manufacturing Co.’s manufacturing capacity by the end of 2026, and when that happens, it will be able to make more advanced silicon for other companies.

Gelsinger told analysts this initiative, called “five nodes in four years,” remains on track. “We continue to make good progress on our five [manufacturing] nodes in four years,” he said. “That culminates with 18A.”

Although the market reacted positively to Intel’s report, some analysts were not convinced. Dave Vellante, longtime industry analyst and co-host of theCUBE, SiliconANGLE’s mobile livestreaming studio, said in a tweet that it was “hard to get excited about today’s results.”

Yup…revenue down 15%. Non-GAAP gross margins down 5.5%. Non-GAAP oper. margins down 9%. Client revenue down 12%. Data center down 15%. Hard for me to get excited @Sarbjeet… stox up 8% after hours.

— Dave Vellante (@dvellante) July 27, 2023

Constellation Research Inc. analyst Holger Mueller was also skeptical, saying Intel is struggling with diminishing sales in all segments of its business. “Gelsinger keeps reducing costs, but the only reason it drove a profit this time is because it’s calculating its income tax liabilities differently this year,” he pointed out. “These are fair measures in desperate times, but investors will want to see if Intel can improve in the next quarter.”

Charles King of Pund-IT Inc. was kinder in his assessment, pointing out that the market’s reaction today is a good example of why it makes sense for executives to be cautious and then offer good news when it comes. “CEO Pat Gelsinger and the rest of Intel’s leadership deserve congratulations for the company’s solid performance, especially given continuing economic uncertainties in many markets,” King said. “They are also savvy to point out the challenges Intel is facing while noting potential benefits it could reap from the uptake in AI-focused systems and solutions.”

Gelsinger spoke about Intel’s plans for artificial intelligence on the call, insisting that the company ultimately aims to build AI into every one of its products. While Nvidia Corp. currently dominates the AI industry, Intel is expected to ship its Meteor Lake CPU later this year, its first consumer chip with an integrated neural processor for machine learning tasks.

AMD has already released such a chip. A leak earlier this year suggested Meteor Lake is designed to power numerous new AI features in Microsoft Corp.’s Windows operating system.

Photo: SiliconANGLE