BackIntel revenue gets boost as businesses upgrade office computers
Intel is getting help from other corporations as they upgrade their office machinery
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San Francisco: Intel Corp. chief executive officer Brian Krzanich is getting help from other corporations as they upgrade their office machinery.
The world’s largest semiconductor maker on Thursday raised its second-quarter revenue forecast and said annual sales will increase for the first time since 2011, buoyed by improving business demand for personal computers (PCs). The company’s shares rose as much as 6.6% in extended trading.
The higher forecast provides another hint of optimism in the personal computer industry, where Intel gets most of its revenue, after two straight years of declining global shipments. “Even as consumers shun PCs in favour of mobile devices, demand for Intel’s microprocessors is getting a lift as companies replace aging computer systems," said Ian Ing, an analyst at MKM Partners.
“In the short to medium term, it looks like the market has stabilized, and business and corporate PCs are driving a lot of strength," said Ing, who has the equivalent of a hold rating on Intel stock. “It’s really a nice positive for them, even without needing the consumer to come back yet."
Sales this quarter will be $13.7 billion, plus or minus $300 million, compared with an earlier projection of about $13 billion, plus or minus $500 million, Intel said on Thursday in a statement. The Santa Clara, California-based company also said it now projects some growth in sales for the year, compared with a previous forecast for revenue to be little changed.
Higher profitability
Gross margin, or the percentage of sales left after deducting production costs, will be about 64% in the current period. That’s 1 percentage point higher than the company’s prior prediction. Intel cited higher PC unit volume for the increase in profitability. The company said it will report second-quarter earnings and update margin projections for 2014 on 15 July.
Analysts on average had estimated Intel’s sales would rise 2% this quarter to $13 billion, from $12.8 billion a year earlier, according to data compiled by Bloomberg. Revenue for 2014 on average was predicted to be $53.1 billion. Intel’s last annual sales growth was the 24% gain it posted in 2011, when revenue was $54 billion.
Intel shares rose as high as $29.80 in extended trading after Thursday’s announcement. Earlier, they rose less than 1% to $27.96 at the close in New York, leaving them up 7.7% this year.
PC declines
Earlier this month, market-research firm IDC estimated worldwide PC shipments will decline 6 percent this year, and said the drop may persist through at least 2018 as consumers increasingly opt for Internet-ready smartphones and tablets instead of desktops and laptops. The researcher also said one bright spot for 2014 has been corporate demand, driven by replacements of computers using Microsoft Corp.’s Windows XP, an operating system that the software maker no longer supports.
To cope with the erosion of PC demand, Krzanich has made Intel’s mobile-chip business a priority, though the company has yet to make much headway. In April, Intel disclosed that first-quarter losses exceeded revenue in its mobile division. Sales in the unit fell 61%.
Intel’s chips power more than 80% of the world’s PCs, so for now the company remains dependent on that market. “To keep revenue growing beyond this year, Intel will have to win business in handheld devices or woo more consumers back to PCs," said Cody Acree, an analyst at Ascendiant Capital Markets Llc.
“It’s nice incremental positive, but it’s largely around the expiration of XP," said Acree, who recommends selling Intel shares. “It’s just a temporary upgrade cycle."
“New thinner and lighter laptops running the company’s processors, some of which are almost as powerful as desktop machines, may attract consumers frustrated with the limitations of tablets and the lack of improvements in mobile-device capabilities," said Suji De Silva, an analyst at Topeka Capital Markets Inc.
“They have very good products and good momentum," he said. “The new form factors will be a longer-term help." Bloomberg
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