Intel Continues To Lower Growth Bar For Its Most Important Segment


Intel’s PC business is slowing down, but the chip making giant has now restructured its operations with an increased focus on the profitable data center business. However, there is still one large problem: the chip maker continues to miss its growth targets for the data center business, and Wall Street has noticed that, notes Business Insider.

Missing growth targets for data center business

After reporting third quarter results, Intel’s stock fell nearly 3.5% on Tuesday. The stock dropped even more after the conference call. Executives lowered the bar for the Data Center Group’s growth to the “high-single digits” this year. The Data Center Group is Intel’s most important group, accounting for around 50% of its operating profit.

Intel is in a good position in the data center market with a 90% share, but it is still struggling to increase that strength. Instead, it is seeing slow growth. So far this year, the chip maker has stepped down its expectations for the data center business from growth at “15%” to “mid-teens” to “double digits.” Now it has come to “high-single digits” for the full year, notes BI.

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Bernstein’s Stacy Rasgon told Business Insider, “It’s a problem. Intel has hit its growth target for Data Center Group only once in the last 6 years.”

Strong numbers but weak outlook

For the third quarter, Intel’s data center business recorded $4.5 billion in revenue, up 10% y-o-y. In the past two quarters, it grew only 5% and 9%, respectively. CEO Brian Krzanich noted that the segment witnessed strong growth in several areas, including the cloud and networking units, but it was offset by the drop in the enterprise segment.

Overall for the third quarter, Intel’s quarterly earnings and revenue topped expectations, helped by strong growth in its data center and cloud businesses and increased PC demand. Global PC shipments dropped a less than expected 3.9% in the third quarter, according to IDC. However, Wall Street was disappointed by the revenue forecast for the current quarter. In after-hours trading, the chip maker’s shares declined almost 5%.

For the fourth quarter, the Intel expects revenue of $15.7 billion. According to Thomson Reuters I/B/E/S, analysts were expecting $15.86 billion.

“This is below the average seasonal increase for the fourth quarter as we expect the worldwide PC supply chain to reduce their inventory,” Executive Vice President Stacy Smith.

On Tuesday, Intel shares closed up 1.23% at $37.75. Year to date, the stock is up almost 8%, while in the last year, it is up more than 14%.

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