Bloomberg News

Intel Forecasts Sales That May Top Estimates on Server Chips (1)

October 15, 2013

Intel Corp.

While Intel Corp.’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 9 out of 10 of the server machines that dish out data to mobile devices. Photographer: David Paul Morris/Bloomberg

Intel Corp. (INTC:US), the chipmaker that gets more than 80 percent 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 billion to $14.2 billion, the company said today in a statement. That compared with the average analysts’ projection of $14 billion, according to data compiled by Bloomberg. Gross margin (INTC:US), or the percentage of sales remaining after deducting production costs, will be about 61 percent, Intel said, in line with estimates.

While Intel’s processors have failed to gain much ground with tablet and smartphone makers, the company still benefits from their popularity because it supplies the main component in 9 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.

“U.S. corporate spending could be a positive surprise,” said Cody Acree, an analyst at Williams Financial Group in Dallas. He has a hold rating on the stock. “That’s a high-margin business.”

Broadwell Delay

Broadwell, the company’s next processor design, which will be made using 14 nanometer manufacturing technology, will go into production in the first quarter of next year, three months behind the original plan, Intel Chief Executive Officer Brian Krzanich said today on a conference call.

Intel shares slipped 2.2 percent to $22.88 in extended trading after the company announced the production delay. They had fallen less than 1 percent to $23.39 at the close in New York, and rose as high as $24 after the sales forecast. The stock is up 13 percent this year, less than half of the gains in the Philadelphia Semiconductor Index.

The company shrinks the size of the circuit lines that give them their function with new production techniques to improve the performance and lower the cost of its chips. That is key to fielding products that it says will win it orders in mobile devices. Broadwell’s delay is a setback to that strategy, though Krzanich said the company is back on course.

“This is a small blip,” he said on the call.

Third Quarter

Third-quarter net income fell to $2.95 billion, or 58 cents a share, from $2.97 billion, or 58 cents, a year earlier, the Santa Clara, California-based company said. Sales were little changed at $13.5 billion. That compared with average analysts’ estimates (INTC:US) for earnings of 54 cents on $13.5 billion of revenue.

Worldwide PC shipments fell 8.6 percent in the third quarter. The decline, the sixth consecutive drop, was tempered by growth in the U.S., where shipments climbed 3.5 percent, market researcher Gartner Inc. said last week.

Intel’s PC-chip group, its largest division, had sales of $8.4 billion, down 3.5 percent 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 percent.

Demand for servers is being driven by companies such as Facebook Inc. (FB:US), Google Inc. and Amazon.com Inc., which are building data centers to meet growing demand for mobile online services.

“The trends are still good for a 10 percent type of growth over the next two years,” said Tristan Gerra, an analyst at Robert W Baird & 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.”

Technology Earnings

Intel’s report opens two weeks of earnings announcements by the largest U.S. technology companies. The chipmaker’s reach in PCs, where its processors have more than 80 percent market share, makes its performance a proxy for the industry. Advanced Micro Devices Inc. (AMD:US), the No. 2 maker of PC processors, will report earnings Oct. 17.

Gross margin in the third quarter was 62.4 percent, Intel said, compared with an average analysts’ estimate of 61 percent.

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.

Intel took 92 percent of revenue in the market for PC processors in the second quarter, compared with a 3.2 percent slice of the market for tablet processors, according to researcher IDC.

The company’s biggest customers are Hewlett-Packard Co., Dell Inc. and Lenovo Group Ltd, which together contribute more than 40 percent of its revenue, according to a Bloomberg supply-chain analysis.

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

While Intel Corp.’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 9 out of 10 of the server machines that dish out data to mobile devices. Photographer: David Paul Morris/Bloomberg Oct. 15 (Bloomberg) -- Stacy Smith, chief financial officer at Intel Corp., talks about the company's third-quarter earnings and outlook. Intel forecast sales that may top some analysts' estimates as demand for server processors helped make up for a slump in PCs. Smith speaks with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg) Oct. 16 (Bloomberg) -- Peter Gleissner, European director at Intel Corp., talks about chip sales in the region and the outlook for the personal-computer market. He speaks with Mark Barton and Anna Edwards on Bloomberg Television's "Countdown." (Source: Bloomberg)

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