Customers stockpiling chips over US-China trade war boosts Intel's earnings

Intel results alleviate some fears about a global semiconductor sales slowdown and curbs on US sales to Huawei

Stockpiling of chips by customers worried about supply risk amid US-China trade tensions helped Intel report better-than-expected earnings and revenue for the second quarter.

On Thursday, the company raised its full-year revenue forecast, alleviating fears about a global semiconductor sales slowdown and curbs on US sales to Chinese firm Huawei.

"Customers concerned about supply risk in the second half of the year related to those items pulled in some demand into the second quarter," Intel's chief financial officer, George Davis, told Reuters in an interview.

"It isn't a net add to the full year (forecast), but it certainly de-risks some of the full year," he added.

In May, Bloomberg reported that Huawei had stockpiled enough chips and other key components ahead of the Trump ban to keep its business running for at least three months. The Chinese company was later blacklisted by the US, accused of aiding the Chinese government in espionage activities.

According to Davis, Intel has now started selling some products to Huawei, in compliance with US government's regulations.

The global chip industry is currently undergoing a slowdown, according to Gartner. The research firm estimates global semiconductor revenue to be around $429 billion this year, a drop of 9.6 per cent from last year. Industry association SEMI also estimates chip sales to drop 12-13 per cent in the current year.

Amid those tensions, many chipmakers in Singapore have started slowing production and laying off hundreds of workers.

But, despite these pressures don't seem to have troubled Intel remains bullish. On a conference call on Thursday, Intel CEO Bob Swan told investors that the company's revenue for the second quarter was $16.5 billion, higher than analysts' average estimate of $15.7 billion.

He also said that Intel expects its third-quarter revenue to be $18 billion, above analysts' estimate of $17.72 billion.

Swan further revealed that Intel is currently manufacturing 10-nm chips in two factories, and its plans to start producing 7-nm chips by 2021 are on track.

Intel also announced today that it is selling the majority of its smartphone modem business to Apple for $1 billion. The deal is expected to close in the fourth quarter of 2019, and will cover about 2,200 Intel employees, intellectual property, leases and equipment.

As part of the deal, Intel will retain the capacity to develop modems for non-smartphone devices, such as personal computers, IoT devices, autonomous vehicles, and other products.

Apple and Intel have been engaged in talks for the past year, but the dialogue stalled in April after Apple reached a settlement with Qualcomm, following years of legal dispute over royalty payments.