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(Bloomberg) – Intel Corp. CEO Pat Gelsinger has said the worst of a sales slump is over and set a bullish tone on the chipmaker’s outlook for the rest of the year and beyond. Investors are waiting to see proof that the company can regain its dominance in the semiconductor industry. The key to winning them over will be Gelsinger’s ability to attract some of the biggest tech companies – cloud giants like Amazon.com Inc. and Alphabet Inc.’s Google – including purchases of server chips for data centers. have been the main driver of Intel’s earnings and growth.
As demand for Intel’s server processors – its top-grossing business – picked up in the second quarter from the first, investors fear the division’s 9% year-on-year decline in sales could signal a long path to recovery. Intel’s Xeon chips, some of which sell for as much as a compact car, compete for business with enhanced offerings from Advanced Micro Devices Inc., and increasingly the internal chip design efforts of major customers in the world. cloud, who wish to supply their own parts. Sales to such cloud providers like Amazon’s AWS and Google have fallen 20% in the recent past, Intel said Thursday in its second quarter earnings report. Gelsinger forecast double-digit sales growth for all data center activity in the second half of the year, and said he expects prices and market share to remain stable. Still, prices fell in the June quarter due to competitive pressure, and the unit will not reach full 2019 revenue this year, he said. The performance of the data center unit, known internally as DCG, is an indicator of progress. of Gelsinger’s desire to restore the leadership of the industry to Intel. Gelsinger, 60, who took the helm in February, has pledged to restore Intel’s technological leadership in the semiconductor industry, following a series of production issues that have delayed some of its most advanced chips. It presented massive spending plans to expand its reach in manufacturing to pose a bigger challenge to Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co.
The company said sales during the current period would be around $ 18.2 billion, compared to an average analyst projection of $ 18.3 billion. Shares fell about 2.8% in extended trading after the announcement. Previously, they closed at $ 55.96 in New York City, leaving them up 12% this year. In the second quarter, the company’s IT activity slightly exceeded estimates, helping to increase overall sales. Intel, based in Santa Clara, Calif., Said sales during the period climbed 2% to $ 18.5 billion, beating average revenue guidance of $ 17.8 billion. Annual sales for 2021 will exceed the company’s previous target, Intel predicts.
These numbers weren’t enough to spark optimism about Intel’s mixed performance amid high demand for semiconductors in general and widespread shortages in the industry, according to Edward Jones analyst Logan Purk . Investors want companies to set more ambitious goals, he said. They also fear that Intel will never return to the over 99% share of the server chip market it once controlled and remain too dependent on PCs. “I think it comes down to PC sales which are driving a lot of the outperformance, which will probably reverse soon,” Purk said. In data centers, he said, “it will decrease over time and these hyperscalers will start to stock up.” Gelsinger offered a much more optimistic outlook for personal computer sales, arguing that many households now house multiple devices and that many of the older machines need to be replaced. He predicted that the PC market would increase again next year. A semiconductor shortage in many sectors of the electronics industry will bottom out in the second half of this year and persist until 2023, Gelsinger said, echoing comments he made last month. This makes him optimistic about the need for Intel’s expansion into the foundry business, where Gelsinger plans to build new factories that will be open to production of designs by other, even competing companies. Historically, Intel has designed and produced its own chips almost exclusively. Asked about reports that he was considering buying chipmaker GlobalFoundries Inc. to speed up the effort, the Intel frontman declined to comment. Mergers and acquisitions are essential, but we won’t rule it out either, ”he told analysts on a conference call. “Our view is that industry consolidation is very likely.”
Investors and analysts hailed Gelsinger’s ambitious approach, while warning that it will take time to deliver results and that in the meantime it could hurt the company’s profitability. Intel said Thursday that its adjusted gross margin, or the percentage of revenue remaining after deducting the cost of production, will be 56.5% this year. For the third quarter, this measure will be 55%, narrower than analysts have estimated. The company has traditionally achieved margins above 60%.
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