Intel’s third quarter revenue marked the third straight quarter in which it has beaten analyst expectations, boosting the narrative that the company’s comeback is well underway, and deflecting attention away from the fact that revenue actually declined for the seventh straight quarter.
Third quarter 2023 revenue came in at just under $14.2 billion, which was well above expectations of around $13.5 billion and helped by sequential growth in most markets, but down from the $15.3 billion reported for the same quarter last year. Net income, though positive at $297 million, also suffered from year-over-year comparison, as it stood at about $1 billion after the third quarter of 2022.
The company’s ability to reach positive net income also has been helped this year by its ability to control its expenses, most evident in the fact that Intel has divested products and businesses, and has about 130,000 fewer employees than it had at this time last year, according to several published reports.
While Intel CEO Pat Gelsigner has been touting AI as a big piece of Intel’s compback story, the company’s Data Center and AI (DCAI) unit saw a year-over-year revenue dip of about 10% to $3.8 billion. Likewise, while Intel has talked up a rebound PC market, its PC-focused Client Computing Group (CCG) reported revenue of just under $8 billion, down roughly 3% from the same period last year. The company’s network end edge business, representing a smaller portion of revenue, was down more than 30% year-over-year to $1.5 billion.
However, Gelsinger, speaking on Intel’s third quarter earnings call, said the company’s AI market progress is measurable and growing as the enterprise AI market evolves from training to inferencing, and that the firm has faith in a PC market rebound that could grow in strength during the final quarter of 2023.
“During the quarter, we shipped our one millionth fourth-gen Xeon unit, and are on track to surpass 2 million units next month,” Gelsinger said as he noted that the DCAI unit exceeded its third quarter expectations. “Fourth-gen Xeon includes powerful accelerators demonstrating best-in-class CPU performance for AI, security, and networking workloads. Our AI-enhanced Xeon 4 are primed for model inferencing, enabling seamless infusion of AI into existing workloads.This was visible this quarter with over one-third of fourth-gen Xeon shipments directly related to AI applications.”
Regarding the PC market, Gelsinger added, “CCG delivered another strong quarter, exceeding expectations for the third consecutive quarter, driven by strength in commercial and consumer gaming SKUs where we are delivering leadership performance. As we expected, customers completed their inventory burn in the first half of the year, driving solid sequential growth, which we expect will continue into Q4. We expect full-year 2023 PC consumption to be in line with our Q1 expectations of approximately 270 million units.”
Intel’s IDM 2.0 evolution and Intel Foundry Services (IFS) also provided reasons for increasing optimism. The still-nascent IFS business saw revenue jump year-over-year to $311 million as it signed on its third manufacturing customer of 2023.
This all added up to a bright outlook for the fourth quarter of 2023. As Intel CFO Dave Zinsner put it, “We expect fourth-quarter revenue of $14.6 billion to $15.6 billion, delivering on our January commitment to grow revenue sequentially throughout 2023. In the client business, we're encouraged by the return of historical purchasing cycles as our channel checks, partner feedback, and ASPs all point to healthy inventory levels and growing demand. We expect moderate sequential growth from DCAI with Xeon strength more than offsetting a decline in PSG [Intel’s Programmable Solutions Group, which it is spinning off next year] and continued recovery in edge markets roughly offsetting persistent network weakness."