Sat, Jan 26, 2019 - Page 10 News List

Weak Intel outlook stokes fears of a chip slowdown

Reuters

Intel Corp on Thursday forecast that current-quarter revenue and profit would be below analysts’ estimates, while it missed fourth-quarter sales estimates after a slowdown in China and sluggish demand for its data center and modem chips.

The company’s shares fell 6.7 percent in extended trading as the news stoked fears of an industry slowdown after sales warnings from Apple Inc, Samsung Electronics Co Ltd and Taiwan Semiconductor Manufacturing Co Ltd (台積電) earlier this month pointed to stagnating smartphone demand and a cooling Chinese economy.

Those fears had lifted briefly earlier this week with better-than-expected quarterly results from Texas Instruments Inc, Xilinx Inc and Lam Research Corp, but after Intel’s report, shares of smaller rival Advanced Micro Devices Inc, which is to report results on Tuesday next week, and Nvidia Corp fell.

Intel said weaker demand from China hurt the company’s data center chip business, which has driven growth in recent years as PC sales have slowed and cloud-based services have become more popular.

In an interview, Intel Interim chief executive officer Bob Swan said data center providers tend to make large purchases in spurts and then spend time “digesting” the chips as they build out their centers.

Sales in China fell because some buyers there — especially cloud computing vendors — seem to have bought chips earlier than usual last year because of fears about US-China trade tensions, Swan said.

US cloud computing vendors continued their usual buying patterns throughout the year, he said.

“I do believe there was earlier buying [among Chinese cloud customers] for server-type products in the course of the second and third quarter of last year, but overall I would say ... the prospects and the health of the industry are as bright as they’ve ever been,” Swan said. “We’re just in a digesting period.”

That digestion period could last until the second half of this year, when Intel’s management said it expects data center growth to pick up again.

For years, Intel had been insulated from swings in Apple’s iPhone supply chain because it was not a major supplier. However, it was the sole provider last year of iPhone modems, which connect phones to wireless data networks, and earlier this month, Apple cut its revenue forecast, citing weak demand in China.

Swan said Intel’s modem business grew by 60 percent over last year, but still came in about US$200 million below target.

The modem unit had “fantastic growth, but weaker than we expected, and as a result that impacted our revenues for the quarter,” Swan said.

Intel forecast first-quarter revenue of US$16 billion and adjusted earnings of US$0.87 per share.

Analysts on average were expecting revenue of US$17.35 billion and profit of US$1.01 per share, according to IBES data from Refinitiv.

Intel’s search for a permanent chief executive officer has lasted six months. In June last year, then-CEO Brian Krzanich resigned after a probe of a relationship with another Intel employee.

“I am convinced the board will close on a new CEO in the near future, and I believe the management team, myself and the 107,000 employees will rally behind him or her to take this company as a whole new level,” Swan said on a conference call with investors. “In the meantime, we will not be distracted by the void.”

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