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Intel’s Sales Forecast Trails Estimates as PCs Lose Favor (2)

July 18, 2013

Intel Sales Forecast Falls Short of Some Estimates on PC Slump

Intel Corp. reported its fourth straight sales decline in the second quarter as consumers shunned the PCs that provide the company with most of its sales, opting instead for smartphones and tablets to get online. Photographer: David Paul Morris/Bloomberg

Intel Corp. (INTC:US), the world’s largest semiconductor maker, forecast third-quarter sales that may fall short of some analysts’ estimates as a slump in the personal-computer market erodes its largest business.

Revenue in the current period will be $13.5 billion, plus or minus $500 million, the Santa Clara, California-based company said yesterday in a statement. Analysts on average had predicted sales of $13.7 billion, according to data compiled by Bloomberg. Intel shares dropped 3.8 percent.

The company reported its fourth straight revenue decline in the second quarter as consumers shunned the PCs that provide the company with most of its sales, opting instead for smartphones and tablets to get online. To halt the slide and reignite growth, Intel needs to persuade more phone and tablet makers to start using its processors, said Michael Shinnick, a fund manager at Salt Lake City-based Wasatch Advisors Inc.

“There is no debate that the traditional PC is in secular decline,” said Shinnick, whose firm owns Intel shares because of its ability to generate cash for dividends and share repurchases. “Can they get share in mobile devices?”

The stock (INTC:US) fell to $23.24 at the close in New York. The stock has gained 13 percent this year, compared with a 27 percent advance by the Philadelphia Semiconductor Index.

Based on Intel’s forecast, third-quarter revenue will be little changed from $13.5 billion a year ago.

Annual Sales

For 2013, the company said sales will be “approximately flat” compared with last year. That brings it in line with analysts, who on average (INTC:US) had estimated sales would be $53.5 billion. Intel had projected an annual revenue percentage gain in the low single digits.

Intel expects the macro economy to improve in the second half of the year, bolstering demand for new server chips, Chief Financial Officer Stacy Smith said in an interview.

Like market researchers and analysts, Intel doesn’t see traditional PC demand rebounding. Its future growth hinges on how well new products aimed at phones, tablets and smaller computers are received, said Smith.

“You’re going to see the traditional segment falling and you’re going to see some of these new categories growing fast,” he said. “Our product line now spans across all these different devices so we can participate in all of the segments that are growing. For us it’s really all about the product cycle.”

The company also reduced its budget for new plants and equipment by $1 billion, to a total of $11 billion, plus or minus $500 million.

Net Income

Intel’s second-quarter net income fell 29 percent to $2 billion, or 39 cents a share, from $2.83 billion, or 54 cents, in the same quarter a year earlier. Sales fell 5.1 percent to $12.8 billion, Intel said in the statement. Analysts on average had estimated earnings of 39 cents on sales of $12.9 billion.

Intel’s PC-chip group, its largest division, had sales of $8.1 billion, down 7.5 percent from a year earlier. The company was unable to compensate for that decline with an increase of less than 1 percent in server-chip sales, to $2.7 billion.

Yesterday’s earnings announcement was the first for Chief Executive Officer Brian Krzanich, who succeeded Paul Otellini in May. Krzanich has said Intel needs to speed up its efforts to win more orders from makers of phones and tablets. The company ended the first quarter with a 6 percent share in tablets, according to Strategy Analytics.

Intel supplied processors for 9 out of every 10 PC-chip-based servers sold in the first quarter, according to IDC Corp. That compares with market share of less than 1 percent in smartphone processors, Strategy Analytics estimates.

Earnings Season

Intel’s results come at the start of two weeks of earnings reports from the largest U.S. technology companies. The chipmaker’s position in PCs and servers make its earnings a closely watched indicator of demand for consumer and business hardware. Also reporting yesterday, International Business Machines Corp., the largest computer-services company, topped estimates with its second-quarter earnings and raised its forecast for the year after cutting costs and buying back shares.

Signs from the second quarter so far haven’t been positive. Global PC shipments fell 10.9 percent to 76 million in the period, the fifth consecutive quarterly drop, market researcher Gartner Inc. said last week. Sales slid from a year earlier in all regions, including a 1.4 percent drop in the U.S.

Seeking Growth

Intel’s new line of processors and an update to the Windows 8 operating system from Microsoft Corp. might not be enough to revive growth in the second half, said Alex Gauna, an analyst at JMP Securities in San Francisco.

“I think things will continue to be weak,” said Gauna, who has the equivalent of a hold rating (INTC:US) on Intel’s shares. “They might not get worse, but I haven’t seen the path to how things get better.”

Gross margin (INTC:US), or the percentage of sales left after subtracting production costs, was 58 percent in the second quarter. That measure of profit will be about 61 percent in the current period, Intel said, compared with a 60.6 percent average analyst estimate. Gross margin will be about 59 percent for 2013, Intel said. It had earlier predicted about 60 percent.

The company’s biggest customers include PC makers Hewlett-Packard Co. (HPQ:US) and Dell Inc. (DELL:US), which together contribute 29 percent of revenue, according to a Bloomberg supply-chain analysis (INTC:US).

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editor responsible for this story: Pui-Wing Tam at ptam13@bloomberg.net


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