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Intel Reports Strong Earnings amid Fears of Cyclical Downturn

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Computing demand on the rise

The overall semiconductor market is seeing a weakness in demand. But the demand for PCs and servers is strengthening, which resulted in an unexpected surge in Intel’s (INTC) earnings. Intel is a leader in the CPU (central processing unit) market and earns more than 80% of its revenue from PC and server chips.

Its rival Advanced Micro Devices (AMD) also reported strong growth in PC and server CPU revenue. But that growth was more than offset by a weakness in GPU (graphics processing unit) and semi-custom demand.

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Intel’s third-quarter earnings

In the third quarter, Intel’s revenue rose 18.7% YoY (year-over-year) and 13% sequentially to $19.2 billion, beating analysts’ estimate of $18.1 billion and its own higher-range guidance of $18.6 billion. Revenue was driven by an unexpected uptick in PC demand and a strong server CPU demand from its cloud and communications customers.

The unexpected demand in the PC space created a CPU supply shortage for Intel. That worked in the company’s favor since it prioritized high-end server and PC CPUs and left the mainstream PC market for AMD. However, it didn’t specify how much revenue it missed.

In the third quarter, higher revenue and a rich product mix increased Intel’s non-GAAP operating income 36% sequentially to $7.6 billion, or 40% of its revenue. Higher margins pushed its EPS to a record high of $1.38.

While Intel reported strong earnings, analysts questioned if such growth was sustainable or accidental. Let’s take a deeper look at Intel’s earnings.

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