Intel Profit Rises, Helped by Lift in PC Sales -- Update

By Ted Greenwald Features Dow Jones Newswires

Intel Corp. posted an increase in first-quarter net profit as revenue was helped by an uptick in PC demand, though profit in its data center operations declined.

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The company's earnings per share beat expectations by a penny and revenue edged in just below estimates.

Shares fell 4% in after-hours trading. Intel's share price generally has lagged behind that of its semiconductor peers, losing roughly 2% in the year to date.

Intel CEO Brian Krzanich said selling price strength across nearly every segment of the business in the quarter "demonstrates continued demand for high-performance computing, which will only increase with the explosion of data."

Intel dominates its core markets of processor chips for PCs and servers. But its overwhelming market share leaves limited room to grow, and competition lately has emerged in both areas. A revitalized Advanced Micro Devices Inc. is building momentum in the PC market and has plans to sell server chips. Meanwhile, processors from Nvidia Corp. have found a place in data centers, while chips based on technology from ARM Holdings PLC are beginning to make headway.

The PC market has been in a persistent decline, but PC shipments in the first quarter were better than expected. Research by International Data Corp. showed a marginal uptick in the first quarter, year on year, compared with its forecast of a 1.8% decline.

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Intel benefited from the PC lift, posting a first-quarter operating profit of $3.03 billion in that segment, up 61% from the year-earlier quarter, on sales of $7.98 billion, a rise of 5.7%.

Sales of server chips in 2017 are widely expected to compensate for any PC shortfalls, driven by gargantuan internet operations such as Alphabet Inc.'s Google Cloud Platform, Amazon.com Inc.'s Amazon Web Services, and Microsoft Corp.'s Azure. The three cloud-computing giants together spent $31.54 billion on data centers in 2016, according to company filings -- up 22% from the previous year.

Intel's data center division dimly reflected the cloud build-out, reporting an operating profit of $1.49 billion, down 16% from the year-earlier quarter, on revenue of $4.23 billion, up 5.8%.

The company aims to spur growth by investing heavily in areas where it has room to gain share. In March, it agreed to spend $15.3 billion to buy Israeli car-camera pioneer Mobileye NV in a deal it expects to close by the end of the year, and it has budgeted $12 billion in annual capital expenditures, largely to build its memory business and beef up its manufacturing facilities, it has said.

Opportunities in automotive, memory, mobile, and the addition of computing and communications to a wide variety of items - a trend known as the Internet of Things -- will amount to a total market of $220 billion by 2021, Intel has said.

Overall for the quarter, the Intel reported 61 cents in earnings per share, or 66 cents per share on an adjusted basis, on revenue of $14.8 billion. Intel's adjusted earnings-per-share figures exclude restructuring charges and certain items arising from acquisitions, as well as related taxes. Analysts surveyed by Thomson Reuters expected adjusted earnings of 65 cents per share on $14.81 billion in revenue.

For 2017, the company raised its adjusted profit projection by a nickel to $2.85 a share. Intel said its expects $60 billion in revenue. It had previously guided for the top line to remain flat from 2016's $59.4 billion.

Anne Steele contributed to this article.

Write to Ted Greenwald at Ted.Greenwald@wsj.com

(END) Dow Jones Newswires

April 27, 2017 17:26 ET (21:26 GMT)