Intel's Cloud Thickens -- Heard on the Street
October 23 2020 - 5:59AM
Dow Jones News
By Dan Gallagher
Intel Corp. hardly needed more trouble, but trouble has had a
way of finding the chip-making giant lately.
The company's third-quarter results Thursday seriously
disappointed investors. The main culprits were tepid sales and a
very weak forecast for the key data-center segment, pushing Intel's
shares down by nearly 10% after hours. This followed a sharp plunge
by the stock after its last report three months ago, when
management disclosed another delay in its next-generation
manufacturing process.
Back then, Intel's current business still was going very well
with data-center revenue up 43% from a year earlier to a
near-record $7.1 billion for the second quarter. But sales of
servers using those processors have plunged, and cloud-computing
giants who buy Intel's chips directly also cooled their spending
recently. The company said in its conference call Thursday that
sales to cloud service operators only rose by 15% in the third
quarter compared with a 47% surge in the second quarter.
Cloud-related sales are expected to moderate even more in the
fourth quarter as customers enter a "digestion period," Intel Chief
Financial Officer George Davis said on the call.
All this contributes to the 25% drop Intel projected for its
fourth-quarter "data-centric" revenue that also includes its
memory, Internet of Things and programmable chip segments.
Meanwhile, a recent boom in PC sales isn't helping the company much
as Chromebooks and other budget machines that don't command high
prices have gained share. Intel still expects to eke out 5% total
revenue growth this year. But with smaller data-center focused
rivals Advanced Micro Devices and Nvidia expected to put up
full-year revenue gains of 32% and 44%, respectively, Intel's
middling performance doesn't hold the same appeal.
Intel has seen dips in data-center sales before, and they tend
to be short lived. The company's problem this time around is that
its recent manufacturing stumble has caused it to consider an
unorthodox move of farming out some production to Taiwan's TSMC --
Intel's biggest rival in chip manufacturing. That introduces
several unknowns into the company's business model, and those
answers won't be clear for some time. Chief Executive Bob Swan said
Thursday he would be looking to make a decision on the outsourcing
question by the end of this year or early next year. But that would
be for products not expected to ship until 2023 -- a long time to
keep investors guessing on where exactly they should put their
chips.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
October 23, 2020 06:44 ET (10:44 GMT)
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