INTC Intel Corporation

By Don Clark and Tess Stynes 

Intel Corp. revealed more pain from the shrinking personal computer business in the latest quarter, but higher chip prices and demand for larger computers helped soften effects of the slump.

The company on Tuesday said third-quarter profits fell 6.3% from the year-earlier period on a slight revenue decline. Intel, whose results were slightly higher than analysts expected, issued a forecast for the fourth quarter that was in line with Wall Street estimates.

Intel, the biggest supplier of chips that serve as calculating engines in computers, gets most of its revenues from chips for PCs. That business has been struggling because of factors that include a shift in consumer spending to smartphones.

Market trackers International Data Corp. and Gartner Inc. last week reported sharp declines in shipments, countering hopes that the release of Microsoft Corp.'s new Windows 10 operating system might spur demand.

Analysts said buyers had put off purchases until the arrival of PCs built with Skylake, a long-awaited overhaul of Intel's flagship Core line of microprocessors. Intel said it benefited in the third period as the company shipped those chips to PC makers.

"Despite ongoing macroeconomic headwinds, there are signs that the PC market is beginning to stabilize," said Brian Krzanich, Intel's chief executive, during a conference call with analysts.

Intel's new Core models command higher prices than earlier products, helping to offset weaker unit shipments. Intel said Tuesday that shipments of chips used in desktop computers fell 15%, while notebook chip volumes were down 14%. But revenue for what Intel calls its client computing unit declined only 7%.

Besides higher prices, Intel said that cutting back on subsidies for sales of chips used in tablet-style computers helped boost revenues.

Meanwhile, sales of chips for the server systems that run most corporate back-office operations rose 12%. Those microprocessors command higher selling prices and wider profit margins than PC chips.

"As we move forward, the server division is clearly going to become more important to profitability," said Bill Kreher, an analyst at Edward Jones.

The company said revenues for the division devoted to the Internet of Things--a term reflecting chips for just about everything but computers--increased nearly 10% to $581 million.

In all, the Santa Clara, Calif., company reported third-quarter net income of $3.11 billion, or 64 cents a share, down from profit in the year-earlier period of $3.32 billion, or 66 cents a share. Revenue declined to $14.47 billion from $14.55 billion.

Intel's closely watched gross profit margin declined to 63% from 65%.

Analysts polled by Thomson Reuters expected per-share profit of 59 cents and revenue of $14.22 billion. The semiconductor giant in July projected revenue of $14.3 billion, plus or minus $500 million.

For the current fourth quarter, the company estimated revenue of $14.8 billion, plus or minus $500 million. Analysts polled by Thomson Reuters expected revenue of $14.83 billion. Intel projected a gross margin of 62%.

Intel's shares, up 1.8% over the past year, initially edged up in after-hours trading following the announcement but later dropped 3%.

Stacy Rasgon, an analyst at Sanford C. Bernstein, attributed the stock decline to concerns that Intel's server chip sales may not grow as quickly as expected in the fourth quarter and that pricing gains may not be sustained.

Write to Don Clark at don.clark@wsj.com and Tess Stynes at tess.stynes@wsj.com

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(END) Dow Jones Newswires

October 13, 2015 18:29 ET (22:29 GMT)

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