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Intel's Weak Outlook Stokes Fears of a Chip Slowdown

Intel's Weak Outlook Stokes Fears of a Chip Slowdown

By Reuters | Updated: 25 January 2019 11:10 IST

Highlights

Intel forecast current-quarter revenue and profit below estimates
The company missed fourth-quarter sales estimates
Company's shares fell 6.7 percent in extended trading after the news

Intel Corp forecast current-quarter revenue and profit below analysts' estimates and missed fourth-quarter sales estimates on Thursday, hit by a slowdown in China and sluggish demand for its data centre 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, Samsung Electronics Co and Taiwan Semiconductor Co earlier this month pointed to stagnating demand from smartphone makers and a cooling Chinese economy.

Shares of smaller rival Advanced Micro Devices, which reports results next Tuesday, dropped 1.7 percent, as did Nvidia Corp.

Intel said weaker demand from China hurt the company's data centre 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 Bob Swan said data centre providers tend to make large purchases in spurts and then spend time "digesting" the chips as they build out their centres.

Sales in China fell because some buyers there - especially cloud computing vendors - seem to have bought chips sooner 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 added.

"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," Swan said. "But overall I would say ... the prospects and the health of the industry are as bright as they've ever been. We're just in a digesting period."

For years, Intel had been insulated from swings in Apple's iPhone supply chain because it was not a major supplier. But it was the sole provider of 2018 iPhone modems, which help the phones connect 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 $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 $16 billion (roughly Rs. 1,10,000 crores) and adjusted earnings of 87 cents per share. Analysts on average were expecting revenue of $17.35 billion and a profit of $1.01 per share, according to IBES data from Refinitiv.

"The macro environment does not look good at the moment and if it gets worse, Intel could see a further downside to its outlook," said Kinngai Chan, an analyst with Summit Insights Group.

Intel has turned to the server chips it supplies data centre operators for growth in recent years. However, fourth-quarter revenue in that higher-margin business came in at $6.07 billion, below expectations of $6.35 billion, according to financial and data analytics firm FactSet.

Intel said the data centre business missed expectations on softer demand from China and slower cloud sales.

Revenue in the client computing business, which includes sales to PC makers was $9.82 billion (roughly Rs. 69,800 crores), missing FactSet estimates of $10.01 billion.

Intel reported net income of $5.20 billion (roughly Rs. 37,000 crores), or $1.12 (roughly Rs. 80) per share, for the fourth quarter ended December 29, compared with a loss of $687 million, or 15 cents per share, a year earlier.

Net revenue rose to $18.66 billion from $17.05 billion, but missed estimates of $19.01 billion.

Excluding items, the company earned $1.28 per share, above expectations of $1.22.

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