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Intel chief executive Brian Krzanich said that he expects the PC market to remain “challenging” in 2015, with mid-single-digit decline in the overall PC market.
At the same time, Krzanich said that he remains enthusiastic about the summer launch of Microsoft’s Windows 10 operating system and accompany Intel chips coming out at the same time. Krzanich said Intel is also diversified into other markets such as data center chips, NAND flash memory, and the Internet of Things. Intel saw pockets of growth in data center processors and storage devices.
Santa Clara, Calif.-based Intel is a bellwether for the PC industry and all things electronic.
Krzanich made the remarks during a conference call after Intel, the world’s biggest chip maker, reported today that first-quarter earnings had met its reduced expectations. The company saw weak business PC and mobile device revenues, as well as a drop in its data center revenue during the quarter compared to a year ago.
Intel reported that earnings per share were 41 cents, or $2 billion, up 8 percent from a year ago. Revenues were $12.8 billion, flat compared to a year ago. But Client Group revenues — which include PC and mobile communications sales — were $7.4 billion, down 8 percent versus a year ago. Data center revenues were $3.7 billion, up 19 percent from a year ago. Internet of Things (IoT) revenue was $533 million, up 11 percent. Software revenue was $534 million, down 3 percent.
Intel’s stock price rose after the announcement at the end of trading hours. After hours, Intel’s stock was up 3 percent to $32.48 a share.
On March 12, Intel had previously warned that first-quarter revenue would be $12.8 billion, plus or minus $300 million, compared to the previous expectation of $13.7 billion, plus or minus $500 million. After that warning, analysts estimated that Intel would report earnings per share of 40 cents on revenue of $12.82 billion.
In its forecast for the second quarter of 2015, Intel predicted revenue of $13.2 billion, up 3 percent from the first quarter. This forecast is in line with the average seasonal increase for the second quarter, the company said.
Stacy Smith, chief financial officer at Intel, said he believes that PC makers burned off excess revenue in the first quarter, and the market should return to growth in the second quarter for the PC market. But Intel is spooked enough to lower its capital spending on chip manufacturing for 2015.
Intel said that its capital spending for 2015 is expected to be $8.7 billion, plus or minus $500 million, down $1.3 billion from the previous expectation of $10.0 billion. The reduction is driven by increased reuse of capital on 14nm and the alignment of capacity with demand, Intel said.
Intel said gross margin will be about 62 percent in the second quarter, or 1.5 points increase from the first quarter. For the full year, Intel is expecting flat revenue compared to 2014 and gross margins for the year of 61 percent, down 2.7 points from 2014.
Intel said that its unit volumes were down 17 percent from the previous fourth quarter, but average selling prices were up 2 percent.
Intel recently announced that it would no longer report its mobile communications results separately, as it had previously said it would combine that unit with the PC client group. That means Intel will no longer have to say that it is losing a billion dollars a quarter in its attempt to break into mobile chips. Intel said it made the change so that it could approach customers using a single client-facing division.
“Given the recent decline in the PC business, Intel did a pretty good job making up for it with a banner quarter in data center (19 percent increase), IoT and memory,” said Patrick Moorhead, analyst at Moor Insights & Strategy. “Those three businesses contributed to 40 percent of the revenue, and it shows Intel can diversify when they need to. Wall Street appreciated the huge $1.3 billion cap-ex reduction, only slightly reduced margins, and the commitment to an $800 million improvement in the mobile business.”
He added, “The second half of the year is full of risks in the PC market, but I’m a lot more optimistic than Intel, and I’m expecting their to be a resurgence in consumer PC sales. Seriously, how long can consumers continue to use those five-year-old PCs? The PC choices with Windows 10 at $499-$599 will be stellar stellar, and quite frankly, tablets are becoming mature. Who do you know that doesn’t have a recently purchased tablet? In the holiday season, PCs will be competing with devices like Apple Watches for consumer disposable income, but the pressure from tablets are off.”
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