April 25, 2019 / 8:15 PM / in a month

Intel cuts forecast as China data center sales remain weak

(Reuters) - Chipmaker Intel Corp on Thursday cut its full-year revenue forecast and missed analysts’ estimates for first-quarter sales for the data center business that has driven growth as PC sales declined in recent years, sending its shares down as much as 7.5%.

FILE PHOTO: The Intel logo is shown at E3, the world's largest video game industry convention in Los Angeles, California, U.S. June 12, 2018. REUTERS/Mike Blake

Intel said China’s economy was consuming fewer microchips than it had expected, adding to concerns that an industry-wide slowdown could persist until the end of 2019. Intel’s outlook follows a similar warning earlier this week from chipmaker Texas Instruments Inc, whose broad lineup of products makes it a proxy for the industry chip industry.

Intel marginally beat Wall Street targets for revenue and profit in the fiscal first quarter, but sales in the data center group unit fell 6.3% to $4.9 billion, hit by weakness in China as customers worked through stockpile of chips purchased last year. Analysts had expected revenue of $5.1 billion, according to financial and data analytics firm Fact Set.

“The data center rebound the company was banking on for back-half (of 2019) improvements doesn’t look like it’s going to happen,” said Patrick Moor head of Moor Insights & Strategy.

Intel’s chief executive, Bob Swan, said in an interview that customers in China had “absolutely” bought extra data center chips last year due to fears of a tariff or supply constraints owing to the U.S.-China trade dispute.

“The belief at the time was that they were ordering well ahead of what their real needs were, but the expectation was that they would consume that over the course of Q4 and Q1,” Swan said. “But today we think ... it’s not being consumed quite at that level; there’s going to be another quarter.”

While Intel highlighted problems in China, “there was weakness, in terms of orders, across almost every single end-market for them,” said Christopher Roll and, an analyst with Susquehanna Financial Group. “It’s really across the board.”

The chipmaker cut its 2019 revenue forecast to $69 billion, from the $71.5 billion it told investors to expect when it last reported earnings in January.

A year-long U.S.-China trade war and weakening smartphone sales have taken a toll on the global semiconductor industry. Investors are banking on the launch of 5G telecom networks and demand for chips used in self-driving vehicles to reignite growth. Swan said a 30% boost in so-called programmable chips that go into 5G networking equipment showed early gains for Intel.

Shares of rival chipmaker Advanced Micro Devices Inc rose 1.5% in extended trade after Intel’s report, while graphics chipmaker Nvidia Corp fell 2.5%. Intel also suffered a decline in its memory chip business, affected by the same pricing declines that have hurt rivals such as Samsung Electronics Co Ltd and Micron Technology Inc .

Intel’s business unit that sells modem chips to connect Apple Inc’s iPhones to wireless data networks was a growth spot, despite Intel’s announcement last week that it would exit the market for 5G modem chips. That news came the same day that Apple resolved a long-standing dispute with Qualcomm Inc and the companies signed a chip supply agreement.

Swan said Intel expects to continue shipping 4G modems, though, as is customary for Intel, he did not mention Apple by name.

“Our expectation is we will continue to deliver on the 4G modem throughout the course of this year, including the second iteration of that product coming in the fall back-to-school season,” Swan said.

The Santa Clara, California-based chipmaker estimated profit of 89 cents per share on revenue of $15.6 billion for its second quarter that ends in June, compared with analysts’ expectation of $1.01 per share on $16.85 billion.

For the first quarter, net income fell to $3.97 billion, or 87 cents per share, from $4.45 billion, or 93 cents per share, a year earlier.

Excluding items, the company earned 89 cents per share, beating analysts’ estimate of 87 cents.

Revenue in Intel’s client computing business, which caters to PC makers and still the biggest contributor to sales, rose 4.45% to $8.59 billion, beating Fact Set estimates of $8.38 billion.

Intel shares were trading down 7.5% at $57.61 after the bell.

Reporting by Sayanti Chakraborty in Bengaluru and Stephen Nellis in San Francisco; editing by Richard Chang and Leslie Adler

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