Intel Reduces Its Forecast, Citing Cloud and Trade Fight -- WSJ
April 26 2019 - 3:02AM
Dow Jones News
By Asa Fitch
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 26, 2019).
Intel Corp. lowered its financial expectations for the year and
reported its first decline in sales of data-center chips in seven
years, reflecting uncertainty in the business-computing market and
slowing demand amid the U.S.-China trade battle.
Revenue slid in the three months through March 30 in the
semiconductor giant's memory and programmable-chips businesses,
too. But demand for Intel chips used in personal computers helped
offset that decline, leaving overall first-quarter revenue flat
compared with the year earlier at $16.06 billion. Profit in the
quarter fell about 11% from the year before to $3.97 billion.
Chief Executive Bob Swan said Intel has become more cautious
about the outlook for this year, although it expects market
conditions to improve in the second half.
In an interview, Mr. Swan said Intel's data-center business has
been hurt by big cloud-computing companies deferring purchases of
new chips as they maximize usage of their existing computing power.
An economic slowdown in China has further hampered the business.
"We have a dramatic slowdown in China," he said. "It's a big
important market for us, and we're seeing buying patterns for both
enterprise and cloud players slow dramatically."
Intel said it now expects earnings of $4.14 a share for 2019 on
revenue of $69 billion, lower than the $4.35 a share in profit on
$71.5 billion in revenue it forecast three months ago.
Intel shares dropped more than 7% in after-hours trading
following the results and revised guidance. The stock ended down
1.9% in regular trading at $57.61, though it had still gained
nearly 23% for the year through Thursday's close.
The results come as Intel looks to reorient itself financially
under Mr. Swan, the former chief financial officer who became
permanent CEO in January. Mr. Swan this month decided to jettison a
business of making modem chips for 5G smartphones that analysts say
hadn't been performing well. The move came after its main
modem-chip customer, Apple Inc., settled a long-running legal
dispute with Qualcomm Inc., paving the way for Qualcomm to start
supplying chips for iPhones again. Intel still plans to meet
commitments to supply modems for iPhones using current-generation
cellular technology.
Intel's statement on the 5G modem decision left unclear the
precise reason. But in the interview Thursday, Mr. Swan said it was
a direct result of the settlement between its customer and its
rival.
"In light of the announcement of Apple and Qualcomm, we assessed
the prospects for us to make money while delivering this technology
for smartphones and concluded at the time that we just didn't see a
path," Mr. Swan said.
Leaving the modem business will shave about $2.6 billion off
Intel's revenue by the 2021 financial year, according to a UBS
estimate. The decision came after the first quarter and the impact
didn't show up in Intel's latest results. Despite abandoning its 5G
smartphone pursuit, Intel still sees 5G chips for networking
equipment and nonsmartphone devices as a big opportunity, Mr. Swan
said. Asked whether Intel was looking at selling the 5G smartphone
modem business, he said the company is "evaluating alternatives on
what's the best course for our IP and our people."
Intel's revenue for the latest quarter was roughly in line with
expectations of analysts surveyed by FactSet. Adjusted earnings of
89 cents a share were slightly higher than forecasts of 87 cents a
share.
Intel's data-center chip business accounts for about 30% of
total revenue. Intel had warned in January that it saw trouble on
the horizon for that after its sales grew by 21% last year.
The last time Intel's data-center revenue declined was in the
first quarter of 2012, just a few years after Intel started
reporting results for the division. Data-center revenue in that
quarter was $2.41 billion. In this year's first quarter, it was
$4.9 billion, down 6% from a year earlier.
Even though Intel's personal-computer-chip business is doing
better -- it booked $8.6 billion of revenue in the first quarter in
its so-called PC-centric business, up 4% year-over-year -- the
company has faced capacity shortages at its factories since last
year that have limited chip shipments at a time of unexpectedly
high demand.
Mr. Swan said the capacity picture was set to be strained
through the first half of the year but would improve in later
quarters. "We're continuing to make progress and we're expecting to
be in balance as we go into the second half of the year," he
said.
While Intel's data-center struggles are uncharacteristic for an
area that had been a major source of revenue growth, the
sluggishness may ease if cloud-computing companies accelerate their
investment in data centers later in the year. Encouragingly for
Intel, some of the largest cloud-services companies are still
logging healthy growth in their businesses. Microsoft Corp., for
example, on Wednesday reported 73% year-over-year growth for its
Azure cloud arm in the first three months of the year.
Write to Asa Fitch at asa.fitch@wsj.com
(END) Dow Jones Newswires
April 26, 2019 02:47 ET (06:47 GMT)
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