(Bloomberg) – Intel Corp. slashed its other quarters and annual sales forecasts, which undermine confidence in the company's assurances that demand for data processors will improve in 2019. Shares tumbled in late trading.
CEO Bob Swan, who stepped up from the financial director role in January, is struggling to prolong a record of record revenues and stave off the budding semiconductor industry competition that threatens Intel's dominance. The key to the company's financial health has been demand from cloud computing providers for chips used in servers, Intel's most cost-effective and most profitable products. In the first quarter, the business declined by 6.3 per cent, which led to an increase in the profits that had driven the company's overall growth, even though the personal computer market was delayed.
Svan said that Intel is dealing with the carpenter's "explosive growth" in 2018 and customers are working through their warehouses of unused parts.
"Last year we had outstanding growth, and we expected a slowdown in the data center," he said in an interview after the report. "It's going to take a little longer than we expected. But we don't moderate our medium and long-term view of the demand for computing."
Intel shares declined to 6.6 percent in extended trading after the announcement. They had previously hit 1.9 percent to $ 57.61 at the end of New York, leaving them up 23 percent this year. That performance tracks the reference to the Philadelphia Stock Exchange Semiconductor Indexes 35 percent last.
Sales in the first quarter were little changed by $ 16.1 billion. Analysts on average had predicted $ 16.03 billion in revenue. Net income fell to $ 3.97 billion, or 87 cents per share, while analysts had estimated 82 cents. Last year's first quarter, Intel earned $ 4.45 billion, or 93 cents.
The decline in the data center was in contrast to a 9 per cent growth in the fourth quarter. In January, Intel managers predicted that orders would pick up when customers worked through unused chip stores. Intel's Xeon processors account for more than 95 percent of the market for servers running servers, backbone computers and the corporate network.
Earlier this month, the company announced that it would knock down a multibillion dollar, decades-long effort to make a chip chip requirement for the mobile phone industry. After Intel's significant customer, Apple Inc., said it would return to using Qualcomm Inc. for its iPhones, Intel announced plans to stop developing chips for 5G smartphones and to complete a modem capability assessment in personal computers and other devices.
Although the server market is more profitable, Intel continues to make the bulk of its revenue from the PC market, and the processors are the main component of most of the world's laptops and desktops. That business posted sales in the first quarter of $ 8.59 billion, an increase of 4.5 percent from the previous year. The lack of some parts, caused by production problems at Intel's factories, has limited shipments of PCs in recent quarters. The Swan said that the shortcomings will continue through the first half of the year.
"Why do we still see CPU deficiencies from Intel? Companies still have difficulty getting CPUs," said Weston Twigg, analyst at Keybanc Capital Markets Inc., referring to the central processing unit of PCs. Share? "
The company has struggled to switch the factory network to more advanced techniques. It is again Intel and the computer industry short of production capacity. In response, the company has prioritized making chips that can charge more for server and high end desktop processors , causing a lack of supply, especially for cheaper laptops.
Intel was initially concerned last year that it could lose the edge in production when the company confirmed that it would not mass-produce semiconductors made with 10-nanometer technology later this year It can put it behind chipmaking rivals like Taiwan Semiconductor Manufacturing Co.
(Updates with CEO's comment in fifth paragraph.)
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