The microprocessor corporation Intel Corporation (NASDAQ: INTC) recently raised its financial guidance, which it provided in the month of July. The tech giant stated that it now anticipates revenue for the third quarter to reach $15.6 billion, higher compared to the previous estimate of $14.9 billion as an outcome of “replenishment of PC supply chain inventory”.
Additionally, Intel indicated that aside from the better inventory dynamics, the company is also seeing some indications of increasing demand in personal computers.
Moreover, another positive news is that Intel is boosting its gross profit margin guidance to 62 percent from 60 percent. The multinational tech company primarily attributes this to higher personal computer unit volume. Furthermore, Intel pointed out that the operating expenses will clock in at around $5.2 billion, representing a slight raise from the previous guidance of $5.1 billion.
The microprocessor company did not sell PCs directly to clients. Yet, it sells important components to PC vendors. These vendors then take Intel’s components and include them into the systems that are sold to customers. Moreover, they have to keep supplies of components and completed systems to be able to cater to the orders in a timely manner.
Those vendors of the systems have to make their best guesses as to the level of demand that they will witness for PCs. These demand estimates most likely inform the production of Intel and sales plans. This is precisely how the microprocessor corporation manages to provide reasonably strong sales guidance for the quarter.
What seems to be going on is that the PC vendors found themselves with lower supply levels of components and PCs than they would like. Hence, they have appeared to order more processors from Intel in an attempt to bring their supply levels higher to effectively support the demand that they anticipate for their products.
Aside from higher sales of personal computer processors, the company also guided gross profit margins higher which aids in boosting the profit growth that greater revenues at flat margins would have brought.
The chip manufacturer owns and operates its own factories and most of the microprocessors that the company develops are targeted at PCs. In order to establish and equip these manufacturing facilities, Intel have to make huge capital investments.
The depreciation costs incurred by Intel in a specific quarter are essentially fixed, and that expense is spread out across the chips that the microprocessor company ships in that period.
If the company manages to ship more microprocessors than it had previously anticipated, then that depreciation cost is spread out over a significant number of chips. With this, the effective cost to develop a chip becomes lower, resulting in better gross profit margins.
As of the time of writing, the INTC stock is trading at $37.16, down by 0.01 percent or 0.01 points.