Sat, Apr 27, 2019 - Page 12 News List

Intel cuts earnings target, signals end to server boom

HANGOVER:CEO Bob Swan said that growth is slowing following explosive growth last year and customers are now digesting inventories


Intel Corp, which had been the biggest beneficiary of a years-long, multibillion-dollar spending spree by the cloud-computing industry, signaled an end to an expansion that drove record revenue and profit.

The world’s second-largest semiconductor maker late on Thursday predicted that its data center group, which provides the chips that are at the heart of almost all server computers, would post a revenue decline this year, its first drop in a decade.

Intel also cut its overall annual sales and earnings targets, and said this quarter would be worse than analysts estimated, sending shares tumbling in extended trading.

Intel shares fell almost 8 percent in pre-market trading yesterday. Asian semiconductor-related shares also fell, with Samsung Electronics Co falling 1.3 percent and SK Hynix Inc dropping 2.6 percent, while Taiwan Semiconductor Manufacturing Co (台積電) declined 2.8 percent.

While admitting that the outlook has deteriorated from earlier projections, Intel CEO Bob Swan said that Intel’s customers, particularly those in China, were merely tapping the brakes after ordering chips at a frantic pace last year.

Overall sales in the first quarter were little changed at US$16.1 billion. Analysts on average had predicted US$16.03 billion in revenue.

Net income slipped to US$3.97 billion, or US$0.87 a share, while analysts had projected US$0.82.

In last year’s first quarter, Intel posted earnings of US$4.45 billion, or US$0.93.

Gross margin was 56.6 percent in the quarter. Intel’s target range for that key indicator of efficiency for a manufacturing company is above 60 percent.

Revenue in the current period would be about US$15.6 billion and net income would be US$0.83 a share, the Santa Clara, California-based company said in a statement.

That compares with average analysts’ estimates of US$16.9 billion and US$0.96 a share, according to data compiled by Bloomberg.

Sales for the year would be US$69 billion, Intel said, below analyst projections of US$71.3 billion.

Swan said Intel is dealing with the hangover of “explosive growth” last year and customers are working through their stockpiles of unused parts.

“Last year, we had outstanding growth and we were expecting a slowing in data center,” he said in an interview after the report. “It’s going to take a little longer than we anticipated.”

Swan also said that the steeper-than-expected drop in orders for some of its business had been more pronounced in China, where the company gets about a quarter of its annual revenue.

“China headwinds have increased,” he said.

The data center unit declined 6.3 percent from a year earlier in the recent period, compared with growth of 9 percent in the fourth quarter.

However, the company’s first-quarter challenges were not confined to server chips.

In memory, Intel’s investments in a new type of semiconductor were not able to provide a cushion from a decline in the price of industry-standard parts it makes. Operating losses in that business widened to US$297 million in the quarter, compared with a loss of US$81 million in the same period a year earlier.

Though the server market is more profitable, Intel still gets the majority of its revenue from the PC market, and its processors are the main component in most of the world’s laptops and desktops.

That business posted first-quarter sales of US$8.59 billion, up 4.5 percent from a year earlier.

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