The Intel logo is displayed outside of the Intel headquarters in Santa Clara, California, in 2014. Justin Sullivan/Getty Images
The Intel logo is displayed outside of the Intel headquarters in Santa Clara, California, in 2014.

Intel Gives Bullish Forecast With Data Center Surge Continuing

Intel data center group's revenue surged 27 percent to $5.5 billion in the second quarter, the company said Thursday • Hyperscale data center operators like Google and Amazon continued pouring money into infrastructure, built on Intel chips • Intel reported $17 billion in total sales for the quarter, up 15 percent

Ian King (Bloomberg) -- Intel Corp., the world’s second-biggest semiconductor maker, reported second-quarter results that beat analysts’ estimates on most measures and raised its full-year outlook. But the shares fell 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 still 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 fourth quarter growth will slow, said Stifel Nicolaus analyst Kevin Cassidy.

The shares slipped as much as 5 percent in extended trading in New York. They had earlier 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 the first after 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 said 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 operators of giant data centers 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 more hefty price tags, Swan said in an interview.

“There’s a good macro environment,” said Swan. “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 jumped 6 percent from a year ago to $8.7 billion, Intel said.

In the second quarter net income was $5 billion, or $1.05 a share, compared with $2.8 billion, or 58 cents in the same period a year earlier. Sales rose 15 percent to $17 billion.

Krzanich left Intel at record performance levels financially but facing a group of new challengers: 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 conducts a search for its next leader, though he has told employees that he doesn’t want the job permanently, a person familiar with the matter has said.

In one of his final appearances in front of a Wall Street audience, Krzanich told investors and analysts on the company’s first-quarter earnings conference call 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.

Under Krzanich’s leadership, Intel tried to spread its bets. It’s added programmable chips for artificial intelligence workloads in data centers, it's jumped back into the booming memory chip industry and is 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 change Intel’s trajectory quickly. The company’s more than 80 percent market share in personal computer chips and near-monopoly in server chips generate 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 any other chip company’s total apart from Samsung Electronics Co.

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