(Bloomberg) -- Intel Corp. declined in German trading after saying a slowdown in demand from corporations threatens to curb sales at its server-chip division -- one of the few bright spots at a company beset by a personal-computer slump.
The world’s largest chipmaker reported third-quarter results that reflected the anemic PC market and forecast fourth-quarter revenue that was in line with analysts’ estimates. Sales in the current period will be $14.8 billion, plus or minus $500 million, Intel said Tuesday in a statement. On average, analysts projected $14.8 billion, according to data compiled by Bloomberg.
On a conference call, Intel executives reduced their target for growth in the server group, a division the company has relied on for sales and profit growth in recent years as the PC market contracts. Corporations, especially in China, are scaling back on server purchases as they outsource more of their technology needs and delay updating their in-house equipment. Chief Executive Officer Brian Krzanich said he remains confident that over time the unit will return to growth of about 15 percent, from a percentage in the low-double digits this year.
“There has been some slowing in enterprise spending,” Alex Gauna, an analyst at JMP Securities in San Francisco, said before the report. He has the equivalent of a hold rating on the stock. “There has to be slowing out there. There are too many macro headwinds.”
Intel shares, down 12 percent this year, slipped 2.7 percent in Frankfurt trading to the equivalent of $31.19 after the data-center group forecast. They initially jumped as much as 3.2 percent in extended trading following the earnings report.
Third-quarter net income fell to $3.11 billion, or 64 cents a share, from $3.32 billion, or 66 cents, in the same period last year. Revenue was little changed at $14.5 billion. On average, analysts had projected earnings of 59 cents on sales of $14.2 billion.
Gross margin, or the percentage of sales remaining after deducting cost of production, was 63 percent in the third quarter. That measure, the only indicator of profit that Intel predicts, will be about 62 percent this quarter.
Third-quarter sales in the company’s client-computing group, which includes PC and mobile chips, fell 7.5 percent from a year earlier to $8.51 billion. Data-center unit revenue jumped 12 percent to $4.14 billion. Intel’s so-called Internet of Things group, which supplies semiconductors for all sorts of connected devices, posted a 9.6 percent gain in sales to $581 million, while software and services was little changed.
PCs vs. Servers
Intel’s processors power more than 80 percent of PCs sold, making its results a harbinger of demand across the computer industry. The Santa Clara, California-based chipmaker’s report leads off several weeks of earnings announcements by the largest technology companies.
While Intel got more than twice as much revenue from selling PC chips as it did from its data-center group in the recent period, the two units brought in almost the same amount of operating profit. That change has been driven by Intel’s 99 percent market share in server chips and surging demand for the machines from operators of data centers, such as Amazon.com Inc. and Google, which are building up their capacity to provide computing power, storage and services via the Internet.
“What we saw were good growth rates in data center, memory and the Internet of Things business that was offsetting some of the weakness that we’ve been seeing in the PC segment,” Smith said. “We would expect to see a normal uptick in consumer buying in the fourth quarter in the PC segment and we’ll continue to see growth in the other segments.”
Global PC shipments fell 7.7 percent in the third quarter, hurt by slower desktop sales and higher dollar-based prices, Gartner Inc. said last week. PC manufacturers shipped 73.7 million units, compared with 79.8 million a year earlier, the market researcher said.
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