Intel Results Beat on Most Measures, But Slowdown Seen Ahead

(Bloomberg) -- Intel Corp., the world’s second-biggest semiconductor maker, reported second-quarter results that topped analysts’ estimates on most measures and raised its full-year outlook. But the shares slipped as some analysts saw signs that growth may slow at the end of the year.

Revenue in the current period will be about $18.1 billion, plus or minus $500 million, the company said in a statement Thursday. That compares with an average analyst estimate of $17.6 billion, though it fell short of some of the most bullish projections. For the full year, Intel increased its revenue target to a record $69.5 billion. Even so, some investors may have done the math and decided that indicates less robust fourth-quarter growth, said Stifel Nicolaus analyst Kevin Cassidy.

The shares fell 6.7 percent in pre-market trading Friday. Earlier, they had closed at $52.16 in New York, leaving them up 13 percent this year. That compares with a 10 percent gain by the Philadelphia Stock Exchange Semiconductor Index.

The results are Intel’s first since the departure of Chief Executive Officer Brian Krzanich, who was removed in June after the chipmaker learned he’d had an extramarital relationship with a subordinate. While the board named Chief Financial Officer Robert Swan as the interim CEO, some analysts expressed concern that Intel could be more vulnerable amid a leadership vacuum. Intel is already struggling with manufacturing difficulties and rivals that are trying to muscle in on its lucrative dominance of computer chips.

The second-quarter report showed little evidence of that as giant data-center operators, such as Google Inc. and Amazon.com, continued to pour money into their networks, which are built on Intel’s silicon. Revenue was helped by customers buying higher-performance products, which carry heftier price tags, Swan said in an interview.

“There’s a good macro environment,” Swan said. “Customers across the board are trading up.”

Intel’s data-center group reported a revenue surge of 27 percent to $5.5 billion. Personal-computer processor sales climbed 6 percent from a year ago to $8.7 billion, Intel said. Swan told analysts on a conference call that Intel’s biggest current problem is keeping up with demand, something it will struggle to do in the second half of the year if the PC market continues to improve.

For the second quarter, Intel said net income rose to $5 billion, or $1.05 a share, from $2.8 billion, or 58 cents, a year earlier. Sales rose 15 percent to $17 billion.

Krzanich left Intel at record performance levels financially, but facing a raft of new challenges. The computer-processing market Intel dominates is reshaping itself to deal with the latest trends, such as artificial intelligence. Swan stepped into the top post while the company searches for its next leader. He has told employees that he doesn’t want the job permanently, a person familiar with the matter has said.

Krzanich told investors and analysts on the company’s first-quarter earnings conference call -- one of his final appearances in front of a Wall Street audience -- that Intel’s migration to new manufacturing technology was taking longer than planned. That ability to move quicker than rivals has been a cornerstone of the company’s success over the years, giving it the ability to field processors that are faster, smaller and cost less to make.

Analysts focused on that this quarter, again showing concern that the delay will provide an opportunity for rivals who are accelerating their push to new technology called 10 nanometer. Intel will have chips using that technology in PCs on sale in the second half of 2019. Servers will follow after that, executives said on the call. Improvements to chip designs being made using existing manufacturing lines will keep its offerings competitive, they added.

Under Krzanich’s leadership, Intel tried to spread its bets. The company has added programmable chips for artificial intelligence workloads in data centers; it’s jumped back into the booming memory-chip industry; and it’s making progress, after years of futility, in the market for chips that power mobile phones by becoming a supplier to Apple Inc.

But those endeavors aren’t big enough to rapidly change Intel’s trajectory. The company has more than an 80 percent market share in PC processors and a near-monopoly in server chips, generating a huge amount of revenue and profit that other divisions struggle to match. Even in a declining market, Intel’s PC-chip division had sales of $34 billion last year, larger than the total chip revenue at any other chip company besides Samsung Electronics Co.

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Molly Schuetz, Andrew Pollack

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