By Asa Fitch 

Chip giant Intel Corp. may be seeing an end to the work-from-home boost it enjoyed during the pandemic, with earnings hit by consumers gravitating to cheaper laptops and datacenter sales softening.

The company on Thursday said revenue dropped 4% to $18.3 billion after it enjoyed strong sales in the first half of the year. The company's bottom line also suffered, with earnings per share falling to $1.02 in the period from $1.35 a year earlier and falling short of Wall Street's expectation.

Intel's shares fell more than 10% in after-hours trading.

The company's growth has been principally in areas where prices are lower, denting profitability, Intel Chief Financial Officer George Davis said. "We saw much stronger PC demand in the consumer and education side, which tends to be the more entry-level for PC notebooks," he said.

For many tech companies, the pandemic has been a boon as customers invested in equipment and software to enable remote work and schooling. PC shipments in the U.S. were the highest in a decade in the third quarter. Cloud computing providers such as Amazon.com Inc. and Microsoft Corp. have also seen strong demand for their services as companies embrace tools to facilitate distributed working.

Intel's Mr. Davis said Intel's cloud business had performed well. But, he said, demand among other kinds of customers that operate datacenters -- companies and governments -- fell off dramatically after a spike in the first half.

That spurred a 7% drop in Intel's datacenter revenue to $5.9 billion, the company said, falling short of what analysts surveyed by FactSet forecast. Revenue for the personal-computer focused business rose 1% to $9.8 billion. The company's memory division, most of which it agreed this week to sell to South Korea's SK Hynix Inc. for $9 billion, also reported lower sales.

Although the results missed Wall Street's bottom-line forecast of per-share earnings of $1.04, they beat the top-line projection. Analysts projected sales of around $18.24 billion.

Despite the mixed results, the company raised its full-year guidance, predicting its top line would increase 5% this year and reach $75.3 billion, a record. Intel now projects $4.55 in earnings per share for the year. It previously forecast $75 billion in sales and $4.53 in earnings per share.

"We're forecasting growth and another record year, even as we manage through massive demand shifts and economic uncertainty," Chief Executive Bob Swan said in a statement.

The changing demand picture represents another challenge for a company already navigating an intensifying competitive landscape and in-house chip production problems.

The company is facing stiff competition from Advanced Micro Devices Inc., which is chipping away at Intel's historically dominant market share in central processing units for PCs and servers. AMD's share of PC CPUs rose to near 20% in the second quarter, according to Mercury Research. And AMD is in talks to buy chip maker Xilinx Inc. to become an even-more formidable rival to Intel.

Nvidia Corp., a chip maker that specializes in graphics processors, surpassed Intel this year as the largest American semiconductor by market valuation. It has been broadening its focus by catering to fast-growing artificial intelligence computation and is seeking to buy mobile-phone chip design giant Arm Holdings in a $40 billion deal that would be the largest-ever in the chip business.

Intel also faces manufacturing issues that have bedeviled its performance. This summer, the company said it had fallen a year behind the initial schedule for its so-called 7-nanometer chips, the next generation of superfast chips with the tiniest-possible transistors. To continue meeting customers' needs, Intel may have some future cutting-edge chips produced outside its own factories, a major shift for the company.

Write to Asa Fitch at asa.fitch@wsj.com

 

(END) Dow Jones Newswires

October 22, 2020 17:29 ET (21:29 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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