Despite a setback in the rapidly expanding market for AI processors in data centers, investors were encouraged by struggling chipmaker Intel’s most recent earnings report.
Intel predicted sales for the upcoming quarter on Thursday to be between $13.3 billion and $14.3 billion, which was somewhat higher than what Wall Street had predicted. In extended trading after the announcement of third-quarter earnings, which concluded in September, the prediction propelled shares up more than 9%.
Intel’s August plan to address its cash crisis by cutting personnel by 15%, or more than 15,000 jobs, and deferring dividends until the end of the year showed investors progress, as evidenced by the increase in the stock price. By 2025, Intel wants to reduce its capital expenditures by $10 billion.
The market shift toward chips that run AI models in massive, hyperscale data centers caught Intel off guard, which is the root of the company’s financial issues. Nvidia, the industry leader in AI, posted a 122% growth in revenue to $30 billion for the quarter that ended in July. The company’s data center chips accounted for over 87% of its revenue.
- The Gaudi, Intel’s AI processor, has not gained any traction in the market. Intel CEO Pat Gelsinger informed Wall Street analysts during the firm’s earnings call that the company will not reach its $500 million revenue goal for Gaudi by the end of this year.
“Overall, Gaudi adoption has been slower than we expected,” Gelsinger stated.
The principal analyst of J.Gold Associates, Jack Gold, stated that Intel’s sales target for Gaudi was overly optimistic from the start. “They’re becoming more realistic.”
According to Gold, Gaudi is not very good at training generative AI models, which is the purpose of the majority of AI chips on the market today. The H100, H200, and Blackwell from Nvidia
AMD, which is far behind Nvidia, increased its sales projection for the MI300X this quarter from $4.5 billion to $5 billion.
The September quarter saw a drop in Intel’s revenue and earnings. Excluding some things, the company reported a loss of 46 cents per share and a 6% decline in year-over-year revenue to $13.3 billion.
Sales of CPUs for traditional enterprise applications were the main driver of Intel’s data center business’s good earnings. Revenue reached $3.3 billion, up 9%.
As businesses testing GenAI applications deploy them into production on servers with Gaudi processors to optimize AI models for particular workloads, Intel anticipates growth in its data center business. Compared to current AMD and Nvidia CPUs, Gaudi is far less expensive and has inferencing capabilities.
According to Gartner, GenAI will help server sales nearly double from $134 billion in 2023 to $257 billion in 2025.
According to Gelsinger, “We see the market coming more toward us,”
The Futurum Group’s principal research officer, David Nicholson, concurred. The direction of the market is reflected in Intel’s roadmap for Gaudi and the Xeon data center CPU.
“Once they get everything whittled down,” Nicholson remarked, referring to Intel’s financially troubled chip plants, “I see a self-sustaining, long-term, solid business.”
In order to free up resources for chip creation, Nicholson thinks Intel should spin out the foundry division. “It’s a boat anchor around the survival of the rest of the business,” he stated.
Gelsinger has a different perspective on the company’s foundries. His turnaround strategies rely on producing processors for rivals and other semiconductor designers. Intel’s foundries are a distinct division of the corporation.
In the prior quarter, Intel’s foundry sales fell by 8% to $4.4 billion. Gelsinger informed analysts that he hasn’t seen a major improvement in the company’s operations for a few years.
In the first half of next year, Intel intends to begin producing its next generation of chips using a cutting-edge manufacturing technique known as 18A. According to some analysts, 18A will eventually draw in more outside chip designers.
According to Gelsinger, Intel’s cost-cutting efforts that began in August will eventually pay off, and the worst is behind it.
“Getting back into the game was a major focus of the first phase,” he stated.
*Editor’s note: In its original publication, this article referenced Gaudi 3 rather than more recent iterations of the architect. We apologize for the issue and have fixed it.