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Intel Forecast Shows Rising Server Demand, PC Share Gains

Thursday, 16 Jul 2015 08:37 AM

Intel Corp. forecast sales that may exceed analysts’ predictions helped by demand for machines that handle the rising tide of digital data and a greater share of the market for personal computer chips.

Third-quarter revenue will be $14.3 billion, plus or minus $500 million, the biggest maker of semiconductors said Wednesday in a statement. That compares with analysts’ average projection of $14 billion, according to data compiled by Bloomberg.

While Intel has missed out on providing chips to the surging number of smartphones and tablets, its processors are the backbone of data centers needed for the applications that make those mobile devices attractive to consumers. The company may also be taking market share from Advanced Micro Devices Inc. in personal computer chips even as total demand for the devices declines.

“They had really good PC client revenues, better than expected,” said Ian Ing, an analyst at MKM Partners who recommends buying the stock. “It could be some additional share gains from AMD. Cloud computing is still strong.”

Intel shares, down 18 percent this year, rose 1.7 percent at 6:50 p.m. New York time in extended trading following the announcement. They were little changed at $29.69 at the close of trading.

Gross margin, the only measure of profit that Intel forecasts, will be about 63 percent in the current quarter. Analysts had estimated the percentage of sales remaining after deducting the cost of production would be 61.2 percent.

PC Dependence

Intel’s earnings are no longer a prisoner of the PC market, Chief Financial Officer Stacy Smith said. While the company expects that market will now fall more than previously expected, the company estimates revenue will be little changed this year — down about 1 percent.

“You can really see the transformation of our business,” Smith said in an interview. “In a world where the PC market is down in the high single digits, we’re going to be slightly down overall.”

The company now gets 40 percent of revenue and 70 percent of operating profit from data center processors, flash memory chips used in computer storage and chips used to add computing power to everything from cars to air conditioners, he said.

Intel’s data center group took over in the first quarter as the biggest provider of operating profit for the company.

The Santa Clara, California-based company said second- quarter revenue was $13.2 billion. Net income declined to $2.7 billion, or 55 cents a share, from $2.8 billion, or 55 cents.

Pace of Progress

Intel has defined success and the pace of progress in the electronics industry for a half century with an observation named Moore’s Law after its founder, Gordon Moore. Now the company said the pace of technical innovation is slowing. While it had taken about two years to introduce new manufacturing techniques, the process is now taking about 2 1/2 years.

The next advancement, 10-nanometer microprocessors, will be in mass production in the second half of 2017, Chief Executive Officer Brian Krzanich said on a conference call with analysts. Despite that slowing, he expects Intel to maintain a lead over other semiconductor makers as improvements in manufacturing get harder for everyone.

Intel said it’s cutting about $1 billion from its 2015 budget for new factories and equipment to $7.7 billion, plus or minus $500 million.

Market Dominance

Intel’s processors are in more than 80 percent of the world’s PCs sold every year and it has 99 percent of the market for servers built on PC chips, making its earnings and forecasts a key indicator of demand across the electronics industry. Its report kicks off two weeks of earnings announcements by the largest U.S. technology companies.

Underlining the difficulties the PC market has faced, computer shipments fell 9.5 percent in the second quarter, hurt by restrained corporate technology spending and the strength of the U.S. dollar, according to market researcher Gartner Inc. Manufacturers shipped 68.4 million units, compared with 75.6 million a year earlier, the steepest quarterly decline since the third quarter of 2013.

Intel has offset the drop by participating indirectly in the surging sales of smartphones and tablets. As handheld devices have become the main way of getting online, the need for the mobile data that gives apps their functionality has soared, creating demand for servers based on Intel chips.

Cloud Revenue

Intel said its client computing group — which sells chips for PCs — generated revenue of $7.5 billion, down 14 percent from a year earlier, but up 2 percent from the previous three- month period. Data center group revenue increased 10 percent from a year earlier to $3.9 billion.

AMD on July 6 said second-quarter sales declined more than originally projected because of weak consumer demand for personal computers. Revenue dropped about 8 percent from the first quarter, compared with an earlier forecast of a decline of about 3 percent. The company will report its full quarterly performance on Thursday.

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Intel Corp. forecast sales that may exceed analysts' predictions helped by demand for machines that handle the rising tide of digital data and a greater share of the market for personal computer chips.
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2015-37-16
Thursday, 16 Jul 2015 08:37 AM
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