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According to Bernstein, Intel's PC CPU shipments grew in the second quarter, which is a rare good news for the firm after its bloodbath second quarter results earlier this month. These shipments came when the PC market grew sequentially and exceeded pre-coronavirus demand. Intel and AMD's PC market, which the pair dominate, grew by 9% over Q1, according to analyst Stacy Rasgon. This growth follows a 1% annual growth in Q1, but Intel's woes aren't over, as, according to the analyst, PC shipments continue to lead CPU shipments.
AMD Eats Away At Intel's Notebook Share As Latter Appears To Find Some Solid Footing
Bernstein's data shows that the PC market outpaced typical seasonal performance in Q2, growing by 9% over the previous quarter and 1% annually. Crucially, the annual growth figure of 1% was a two-percentage-point gain over the 1% drop in Q1 and a three-point gain over Q4 2023's 2% contraction.
Intel and its smaller rival AMD rely on their sales channels to clear inventory. This also leaves them vulnerable to supply chain disruption, as a demand and supply mismatch can lead to excess or low inventory in the channel. This leads to either a glut or a shortage, with the end prices dropping or rising correspondingly.
According to Bernstein, the personal computing central processing unit (PC CPU) channel for desktops and notebooks appears to be clearing. This channel has been 'overstuffed' in recent years, and Intel, for its part, has often faced accusations of shipping too much product to maintain shelf space even if the supply exceeds demand.
The data reveals that during Q2, desktop and notebook CPU shipments outpaced end product shipments by 9%. This margin was higher for notebook CPUs, as it sat at 10%, and the corresponding figure for desktop CPUs is 7%, shares Bernstein's data.
The overall desktop and notebook CPU channel margin sat at 18%, 22% and 9% during Q1, and for Intel, this is good news. During the firm's second quarter earnings call, CEO Patrick Gelsinger noted that "modest inventory digestion" would lead to a weaker Q3 report, and CFO David Zisner added that "lower than anticipated revenue in the back half of the year" was "pressure on gross margins and earnings."
Moving forward, a clear-up in channel inventory should help Intel, and Bernstein provides more color to its revenue by revealing that roughly $1.3 billion of Intel's Q2 revenue was in the form of incentivized sales. These tend to pull sales backward in time, and the research firm notes that when coupled with $1.6 billion of Q1's incentivized sales, it is similar to levels in Q3 and Q4 2022 when these figures sat at $1.5 billion and $1.7 billion, respectively.
In its Form 10-Q for Q2 2024, Intel outlined that "Incentives offered to certain customers to accelerate purchases and to strategically position our products with customers for market segment share purposes, particularly in CCG, contributed approximately $1.3 billion to our revenue during Q2 2024. The impacts of these Q2 2024 incentives were contemplated in our financial guidance for Q3 2024, as included in our Form 8-K dated August 1, 2024."
Incentivizing sales means that Intel's customers buy more chips than they typically would, which can lead to an overfilled channel. Bernstein seems to agree with this as it shares, "Intel has been pulling forward sales for quite a few quarters, with recent "incentivized sales" levels approaching the elevated levels we saw exiting 2022, and hence are paying for it now."
As for its market share war with AMD, Intel gained a percentage point in the desktop market during Q2 while it lost a percentage point in the notebook market. The share price bloodbath following its disastrous earnings report has brought Intel's share price close to its tangible book value of $19.5, notes Barron's, which could imply that the stock has reached a proverbial bottom since the tangible book value is the approximate liquidation value of a company. Bernstein has set a $25 share price target for Intel and rated the stock as Market Perform.
About the author: Ramish is a seasoned technology writer and editor with more than a decade of experience. He specializes in semiconductor fabrication and market analysis. With a background in finance and supply chain management - via his bachelors in Finance and a micromasters in supply chain management from MIT - Ramish combines financial rigor with deep industry insight to deliver accurate and authoritative coverage.
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