Intel Sales May Miss Estimates on Lackluster Demand for PCs

Intel Corp.’s first-quarter forecast sparked concern that consumers aren’t returning to the personal-computer market.

The world’s largest maker of PC chips projected sales that may fall short of analysts’ estimates. Revenue will be $13.7 billion, plus or minus $500 million, the company said today in a statement. On average, analysts had predicted sales of $13.8 billion, according to data compiled by Bloomberg.

The PC industry has been struggling to attract more home users with slim new laptops designed to compete with tablets and smartphones. As corporate PC upgrades slow after a strong 2014, consumer demand will be key to propping up the market this year, and Intel’s quarterly forecast didn’t provide evidence that such a revival has begun.

“On the consumer side, it’s clearly a show-me story,” said Mark D’Cruz, an analyst at Key Private Bank, which owns Intel stock as part of the $28 billion it has under management. “Guidance was a little disappointing.”

Shares of the Santa Clara, California-based chipmaker fell 2.5 percent in extended trading following the forecast. They earlier closed at $36.19 in New York trading and were the best performer on the Dow Jones Industrial Average with a 40 percent rally in 2014.

Fourth Quarter

For the fourth quarter, net income rose to $3.66 billion, or 74 cents a share, from $2.63 billion, or 51 cents, in the same period a year earlier. Revenue rose 6.4 percent to $14.7 billion, the company said today. Analysts on average projected earnings of 66 cents a share on sales of $14.7 billion.

Earnings were bolstered by Intel’s server-chip business, which benefits from the growing need to supply data to smartphones and tablets and as companies outsource their computing to remote cloud-data centers.

Consumer PC demand will improve in 2015 as people replace their aging home computers, even as corporate buying slows, Intel Chief Financial Officer Stacy Smith said. The company expects PC unit shipments to be unchanged this year, he said.

“Within the PC market we’d characterize 2015 as seeing a little less growth coming from the enterprise and a little less weakness coming from the consumer segment of the market,” Smith said in an interview with Bloomberg Television. “We have worked tirelessly with our partners to bring really innovative, exciting devices to the PC market.”

PC Industry

Like other companies that depend on the PC industry for the majority of their income, Intel’s biggest business unit has suffered as phones and tablets have caught on with consumers and increasingly moved into the workplace.

“We’ve heard the line before that innovation will lead to greater demand,” said Bill Kreher, an analyst at Edward Jones & Co., who has the equivalent of a hold rating on the stock. “They will need some consumer pickup in the back half to justify projections.”

Intel’s processors are the main component in more than 80 percent of the world’s PCs, and Chief Executive Officer Brian Krzanich’s failure to win orders in phones has prolonged its reliance on the slumping market. That hasn’t held it back in server processors, where it’s squeezed its sole competition, Advanced Micro Devices Inc., down to less than 2 percent of the market.

Fourth-quarter sales in Intel’s PC-chip division rose 3 percent to $8.87 billion, while revenue from chips that run servers in data centers increased 25 percent to $4.09 billion.

Mobile Chips

Sales in the mobile and communications group came in at negative $6 million, eroded by subsidies the company pays device makers to use its chips. That group posted a quarterly operating loss of $1.11 billion, bringing its loss for the year to $4.21 billion.

This year, Intel is planning to reduce costs in that division by $800 million as it offers more competitive chips that don’t require subsidies, reduces investments and begins selling new cellular chips, executives said on a conference call.

PC shipments fell 2.1 percent in 2014 to 308.6 million units, according to IDC. That’s down from a peak of 363.8 million units in 2011. The market dropped 10 percent in 2013 following a decline of 4 percent in 2012.

For 2015, revenue will rise at a percentage in the mid-single digits, Intel said. Analysts on average projected a gain of 4 percent for the year. Sales in 2014 climbed 6 percent to $55.9 billion.

Annual gross margin, the percentage of sales remaining after deducting the cost of production, will be 62 percent.

That measure of profitability, the only one that Intel forecasts, will be 60 percent in the first quarter. That compares with an average analyst estimate of 61 percent.

In the current year, Intel is planning to spend about $20 billion, plus or minus $400 million, on research and development and $10 billion, plus or minus $500 million, on new plants and equipment.

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