Intel reported that it grew revenues 20% to $19.7 billion in the second quarter as the pandemic spurred people to buy PCs so they cold work from home better. But the company said it ran into delays in ramping up its 7-nanometer manufacturing plants, which sent the company’s stock downward in after-hours trading.
PC-centric revenue grew 7% compared to a year ago, while data-centric revenue grew 34%, accounting for 52% of overall revenue. Earnings per share was $1.19, up 29%, while non-GAAP earnings per share was $1.23. Analysts had expected Intel to report earnings of $1.11 a share on revenue for $18.54 billion. In after-hours trading, Intel’s shares are down 9% to $54.93 a share.
Intel CEO Bob Swan said it was an “excellent quarter, well above our expectations” in a statement. He credited the performance to cloud-delivered services, a work- and learn-at-home environment, and the buildout of 5G networks.
Intel said that it is accelerating its transition to 10-nanometer, but it noted that its next-generation manufacturing — which would deliver higher production, faster chips, and lower costs — has been delayed compared to its prior expectations.
For the full year, Intel expects non-GAAP earnings per share of $4.85 (flat versus a year ago) on revenue of $75 billion (up 4% from a year ago). For the second quarter, the datacenter group had revenue of $7.1 billion, up 43%. The internet of things group had revenue of $670 million, down 32%. Mobileye revenue was $146 million, down 27%. NSG (flash memory) revenue was $1.7 billion, up 76%. PSG (programmable chips) revenue was $501 million, up 2%. And the PC division, CCG, saw revenue of $9.5 billion, up 7%.
Intel said it saw strong sales of cloud, notebook, memory, and 5G products. Intel introduced its third-generation Intel Xeon Scalable processors during the quarter.
Intel said PC chip sales were strong in the quarter thanks to notebook strength driven by the continued work- and learn at home dynamics of COVID-19, which also contributed to a volume decline in desktops as demand shifted to laptops.
Intel has its code-named Tiger Lake 10-nanometer products launching soon, and it is prepping Ice Lake server central processing units (CPUs) for launch by the end of the year. In the second half of 2021, Intel expects to deliver a new line of client CPUs (codenamed Alder Lake), which will include its first 10nm-based desktop CPU, and a new 10nm-based server CPU (codenamed Sapphire Rapids).
The company’s 7nm-based CPU product timing is shifting approximately six months relative to prior expectations. The primary driver is the yield of Intel’s 7nm process, which based on recent data, is now trending a year behind the company’s internal targets.
With a 7nm process, the width between circuits is 7 nanometers wide, where a nanometer is a billionth of a meter. By moving from 10nm to 7nm manufacturing, Intel can miniaturize its circuits, cut costs, speed up the performance, and speed up production.
“The 7nm [delay] isn’t a positive announcement as many products were dependent on it,” said Patrick Moorhead, analyst at Moor Insights & Strategy, in an email to VentureBeat. “Knowing Intel, it always has backups for its backups and I am sure we will be hearing about enhancements to 10nm to increase its competitiveness. The company has done well financially, particularly well in the datacenter, notebook and commercial product lines, on 14nm when the rest of the world was on TSMC’s 10nm.”
Intel expects revenues of $18.2 billion in Q3, with operating profit down 30% from a year ago and earnings per share of $1.10 a share, down 22% from a year ago.
In a call with analysts, Swan said that Intel has contingency plans to launch products if it cannot produce 7nm chips in a timely manner. That could include a contingency of using a contract chip manufacturer to make its chips. That’s a big contingency, considering Intel spends billions of dollars a year keeping its internal chip manufacturing technology current.