Intel Projects Sales Growth on Data Centers, PC Demand

By Ian King (Bloomberg) -- Intel Corp, the biggest maker of semiconductors, predicted first-quarter sales that will meet analysts’ estimates on improvements in the personal computer market and continued growth in orders from data center owners.

Revenue will be $14.8 billion, plus or minus $500 million, the Santa Clara, California-based company said Thursday in a statement. Analysts had projected $14.5 billion, the average of estimates compiled by Bloomberg.

Chief Executive Officer Brian Krzanich said he’s making progress in trying to generate revenue from more diverse sources such as cars and mobile phones while lessening the chipmaker’s reliance on a shrinking PC business. The results reported Thursday showed that Intel has carved out more sales in some areas, but profit is still tied to demand for processors running server computers in giant data centers.

Intel reported 8 percent revenue growth to $4.67 billion in its data center unit, a slower increase than the company’s long-term target. Server sales were hurt by the shift of corporate computing to outsourcing with cloud service providers, the company said. Intel isn’t backing off its belief that it can return to double-digit percentage growth in server chips, Krzanich said, helped by increasing demand in networking and communications.

“This thing will go back to double digits,” he told analysts on a conference call. He declined to predict when that might be. “This is an anomaly right now.”

Shrinking PCs

The company’s client computing group, which sells PC chips, gained 4.3 percent to $9.13 billion in the fourth quarter. For the year, the company is predicting that PC shipments will decline in the mid-single-digit percent range. That’s better than prior years, but worse than market forecasters are projecting.

“We enter the year with a bit of a cautious view” on the total market for PCs in 2017, Intel Chief Financial Officer Bob Swan said in a phone interview.

In the short term, demand for personal computers isn’t shrinking as fast as it was and Intel and other companies that depend on the market are enjoying a respite, according to Tristan Gerra, an analyst at Robert W. Baird & Co.

“PC trends have continued to surprise a little bit on the upside,” he said. December computer sales were higher than predicted and Intel’s orders from Apple Inc. for the iPhone are helping reduce its mobile division’s losses, he said.

Shipments of personal computers fell 1.5 percent in the fourth quarter, a narrower decline than the preceding quarter, researcher IDC said earlier this month. For the full year, shipments declined 5.7 percent -- following an 11 percent drop in 2015 when they dipped below 300 million for the first time since 2008.

Intel shares were little changed in extended trading following the announcement. The stock gained 5.3 percent last year, compared with a 37 percent surge by the benchmark Philadelphia Stock Exchange Semiconductor Index.

Fourth Quarter

Fourth-quarter net income was $3.6 billion, or 73 cents a share, compared with $3.6 billion, or 74 cents, a year earlier. Revenue rose 10 percent to $16.4 billion. Profit, excluding certain items, was 79 cents a share. Analysts, on average, had predicted a profit of 75 cents a share on sales of $15.8 billion.

Adjusted gross margin, or the percentage of sales left after subtracting production costs, narrowed to 63.1 percent from 64.8 percent a year earlier, Intel said. That measure of profitability will be 63 percent, plus or minus “a couple of percentage points,” in the current quarter, Intel said.

Intel predicted that 2017 annual revenue will be unchanged from 2016. The forecast includes the divestiture of its Intel Security Group announced last year. Analysts had estimated a revenue increase of 4 percent for the year.

The company plans to boost spending in 2017 on new plants and equipment to about $12 billion, an increase of about $2 billion from last year. The company is expanding its production of new memory chip technology.