Demand for server processors helps Intel make up for a slump in PCs
Rise of smartphone aids chip-maker as it supplies the main component in nine out of 10 of servers that deliver data to mobile devices
The new Intel Galileo development board that features the Quark SoC X1000 technology - both were designed in Intel Ireland Photography: Marc O’Sullivan
Intel, the chipmaker that gets more than 80 per cent of revenue from the personal-computer market, forecast sales that may top some analysts’ estimates as demand for server processors helped make up for a slump in PCs.
Fourth-quarter revenue will be $13.2- $14.2 billion, the company said tonight in a statement. That compared with the average analysts’ projection of $14 billion.
Gross margin, or the percentage of sales remaining after deducting production costs, will be about 61 per cent, Intel said, in line with estimates.
While Intel’s processors have failed to gain much ground with tablet and smartphone makers, the company has benefited from their popularity because it supplies the main component in nine out of 10 of the server machines that dish out data to mobile devices.
In addition, some businesses have started to purchase PCs again, helping to slow the decline of that market.
“US corporate spending could be a positive surprise,” said Cody Acree, an analyst at Williams Financial Group in Dallas, who has a hold rating on the stock. “That’s a high- margin business.”
Worldwide PC shipments fell 8.6 per cent in the third quarter. The decline, the sixth consecutive drop, was tempered by growth in the US, where shipments climbed 3.5 per cent, market researcher Gartner said last week.
Intel shares rose as high as $24 in extended trading following the announcement. They had earlier fallen less than 1 percent to $23.39 at the close in New York.
The stock is up 13 percent this year, less than half of the gains in the Philadelphia Semiconductor Index.
Intel’s PC-chip group, its largest division, had sales of $8.4 billion, down 3.5 per cent from a year earlier. Its server- chip unit, which also sells processors for storage and networking equipment, had revenue of $2.9 billion, a gain of 12 per cent.
Demand for servers is being driven by companies such as Facebook, Google and Amazon.com, which are building data centres to meet growing demand for mobile online services.
“The trends are still good for a 10 per cent type of growth over the next two years,” said Tristan Gerra, an analyst at Robert W Baird and Co. He has the equivalent of a hold rating on the shares. “You need a lot of growth in that area to offset the decline in the remaining two-thirds of the business.”
Intel’s report opens two weeks of earnings announcements by the largest US technology companies. The chipmaker’s reach in PCs, where its processors have more than 80 per cent market share, makes its performance a proxy for the industry. Advanced Micro Devices, the No. 2 maker of PC processors, will report earnings on Thursday.
Intel’s third-quarter net income fell to $2.95 billion, or 58 US cents a share, from $2.97 billion, or 58 cents, a year earlier, the company said in a statement on its website. Sales were little changed at $13.5 billion.
That compared with average analysts’ estimates for earnings of 54 cents on $13.5 billion of revenue.
The company has said sales are likely to be unchanged this year. Intel expects to add orders in tablets and new computers – laptops with detachable keyboards and touch screens that it calls two-in-ones – to make up for declining sales of traditional notebook machines.
The company took 92 per cent of revenue in the market for PC processors in the second quarter, compared with a 3.2 per cent slice of the market for tablet processors, according to researcher IDC.
Gross margin in the third quarter was 62.4 per cent, compared with an average analysts’ estimate of 61 per cent.
The company’s biggest customers are Hewlett-Packard, Dell and Lenovo, which together contribute more than 40 per cent of its revenue, according to a Bloomberg supply-chain analysis. – Bloomberg