Weak China Demand Hits Intel

Article By : Dylan McGrath

Intel became the latest chipmaker stung by slowing demand in China, as its a fourth-quarter report and first-quarter forecast that both fell short of Wall Street’s expectations...

SAN FRANCISCO — Intel became the latest chipmaker stung by slowing demand in China, as the biggest U.S. semiconductor firm offered a fourth-quarter report and first-quarter forecast that both fell short of Wall Street’s expectations.

Intel (Santa Clara, California) set an all-time high for the third straight year with 2018 sales of $70.8 billion and reported broad-based fourth-quarter growth across nearly every business unit. However, growth in data center sales came in far below what the company forecast as demand from Chinese customers weakened.

Bob Swann, Intel’s interim CEO, also cited dramatically weakening modem demand and a weakening NAND pricing environment for the sales shortfall. Since October, cloud service providers have shifted from building capacity to absorbing capacity, further hurting sales, he said.

“Since [October], trade and macro concerns — especially in China — have intensified,” Swann told analysts following the fourth-quarter report. “Cloud service providers shifted from building capacity to absorbing capacity and the demand pricing environment has further deteriorated. Those incremental headwinds are impacting our revenue expectations and slightly reducing our operating margin percentage forecast.”

Intel was the second major U.S. chipmaker this week to report a material impact from weakening demand in China and fallout from trade tensions between the U.S. and China. On Wednesday, Texas Instruments reported its first year-over-year decline in quarterly sales in more than two years amid what company executives characterized as semiconductor cyclicality and weaker demand in China.

Escalating trade tensions between the world’s two largest economies erupted into a full-on trade war last year, resulting in the two countries levying tariffs on products exported by the other. Until this week, though, chip companies generally reported seeing little fallout on their business.

Intel reported fourth-quarter sales of $18.7 billion, up 9% compared to the fourth quarter of 2017. The company reported a net income of $5.2 billion for the quarter compared to a loss of $700 million in the fourth quarter of 2017 that was largely due to tax law changes.

Fourth-quarter sales came in slightly below consensus analysts’ expectations, which called for sales of $19.1 billion, according to Yahoo Finance. Intel’s fourth-quarter earnings per share of $1.12 also came in below consensus analysts’ expectations of $1.22, according to Yahoo Finance.

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Fourth-quarter sales were up year over year across each of Intel’s business units except for the company’s internet of things (IoT) group, where sales of $816 million were down 7% compared to the fourth quarter of 2017. However, Intel said that IoT sales were up 4% year over year despite supply tightness, excluding the impact of Wind River, which the company divested in the second quarter of 2018.

Sales for Intel’s memory group reached a record $1.1 billion in the fourth quarter, up 25% compared to the fourth quarter of 2017. Intel’s PC business, the Client Computing Group, posted fourth-quarter sales of $9.8 billion, up 9% compared to the fourth quarter of 2017, while the Data Center Group posted sales of $6.1 billion, up 9%.

For the full-year 2018, Intel reported sales of $70.8 billion, up 13% from 2017. The company’s profit for the year was $21.1 billion, up 28% from 2017.

Intel said that it expects sales to fall to about $16 billion in the first quarter, far short of consensus analysts’ expectations of about $17.4 billion. This result would represent a slight decline from sales of $16.1 billion in the first quarter of 2018.

Intel has been searching for a full-fledged CEO for more than six months following the abrupt resignation of Brian Krzanich over revelations of a past inappropriate relationship with an Intel employee. On Thursday’s conference call, Swann offered no specific timetable update to the CEO search, other than to say that he was convinced the board would make a decision soon.

“The board continues to evaluate candidates for what I believe is the biggest and best open job on the planet,” he said. “They are proceeding with a sense of urgency while also ensuring that they make the right choice for this great company.”

The timeline for the rollout of Intel’s slow-to-ramp 10-nm processors remains unchanged from October, with the company still shooting to have the devices in PCs sold during the 2019 holiday season.

“Our 10-nm yields continue to improve, and Ice Lake remains on track to be in volume systems on retail shelves for the 2019 holiday selling season,” Swann said.

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