* Data center business, a bright spot, failed to hold up
* PC shipments expected by analysts to decline slightly this
* Shares slide
By Noel Randewich
SAN FRANCISCO, Oct 16 Intel Corp's weak
outlook for fourth-quarter revenue and margins dispelled
lingering hopes for a revival in PC demand towards the end of
the year, pushing its shares 2 percent lower.
Intel, along with rival Advanced Micro Devices, had
previously warned of weak demand for PCs, hit by a troubled
global economy and the growing popularity of tablets like Apple
Inc's iPad, once dismissed as a niche device but now leading a
fundamental shift in consumer computing.
Intel's corporate-focused server and data center business
has helped offset weak PC sales in recent quarters, but in the
third quarter, revenue from that division also disappointed as
enterprises bought fewer servers.
"You have to remember, data center has been the rock we've
all leaned on," said Patrick Wang, an analyst at Evercore
Partners. "It's a reflection of enterprises and companies
rationalizing their year-end spend."
With economic growth slowing in China and struggling in
Europe and the United States, global PC shipments are expected
by analysts to decline slightly this year, the first annual drop
Intel said the data center business, which sells server
chips and other equipment to companies and governments, grew 6
percent year over year in the third quarter, although it was
down 5 percent from the prior quarter.
Profitability will also take a hit, as Intel idles excess
capacity at its plants in an effort to reduce inventories of its
It foresees fourth-quarter gross margins of 57 percent, or
58 percent on a non-GAAP basis, both plus or minus a couple of
percentage points. Analysts on average expected gross margins of
about 62 percent for the current quarter.
Chief Financial Officer Stacy Smith said about two-thirds of
the anticipated decline in margins will come from excess
Intel is also running its factories at less than 50 percent
of their capacity, redirecting unused space and equipment to be
used on more cutting-edge production lines still being built.
To inject new life into PCs, Intel has been promoting a new
category of thin, "Ultrabook" laptops with touch screens enabled
by Microsoft's upcoming Windows 8. But the Ultrabooks launched
so far have been criticized as too expensive, and manufacturers
have shipped fewer than expected.
"I absolutely expect growth in the PC segment, and I firmly
believe that the level of innovation we're seeing in Ultrabooks
is going to be one of the catalysts," Smith told Reuters in a
telephone interview. "I'm not going to put a number out there
-but I expect it to grow."
Shares of Intel fell to $22.35 in after hours trade, after
closing up 2.85 percent at $22.35.
MICROSOFT AS SAVIOR?
The world's leading chipmaker is used to being king of the
personal computer market, particularly through its historic
"Wintel" alliance with Microsoft Corp, which led to
breathtakingly high profit margins and an 80 percent market
But in the fast-growing and cut-throat mobile world, Intel
is struggling - its market share is less than 1 percent of
smartphones, trailing Qualcomm Inc, Samsung Electronics
Co Ltd, ARM Holdings Plc and others.
That leaves some investors, already concerned about a
lackluster global economy, asking if Intel's invincibility has
come to an end, and whether its profit and revenue growth
potential may come back down to earth.
The PC industry has been banking on Microsoft's launch of
Windows 8 later in October to breathe new life into laptops and
slow the trend of consumers buying smartphones and tablets
instead of PCs. But there has been little sign of a significant
bump in PC manufacturing or shipments ahead of the launch, at
least in the short-term, analysts say.
Intel estimated fourth-quarter revenue of $13.6 billion,
plus or minus $500 million. Analysts expected $13.74 billion for
the current quarter.
In the third quarter, Intel's revenue was $13.5 billion,
compared with $14.2 billion a year earlier. Analysts had
expected $13.23 billion in revenue for the third quarter,
according to Thomson Reuters I/B/E/S.
Net earnings were $2.97 billion, or 58 cents a share,
compared with $3.47 billion, or 65 cents a share in the same
quarter last year.