Intel Corp.'s fourth-quarter profit slipped 1.4%, despite robust sales of chips that drive the computers underpinning large internet providers and corporate operations, while sales of chips for PCs also rose.
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"In 2016, we took important steps to accelerate our strategy and refocus our resources," said Intel CEO Brian Krzanich in a press release. "I'm pleased with our 2016 performance and confident in our future."
Shares rose 0.8% to $37.94 in after-hours trading as earnings and revenue beat expectations. Intel's share price grew 5.3% in 2016, roughly half the gain of the S&P 500, making it one of the year's worst performers among semiconductor stocks.
The Santa Clara, Calif., chip giant holds overwhelming market share in chips for PCs, including desktops and laptops, and in servers, the powerful computers that process data for internet and web services as well as large companies.
Yet overall revenue growth has been hard to come by. The company largely missed out on the mobile revolution that has outstripped the market for desktops and laptops. Intel won an important victory in late 2016 by signing a contract to supply communications chips for roughly half of Apple Inc.'s iPhone 7 units. But the deal wasn't large enough to lift Intel's mobile operations into profitable territory, according to some analysts.
Meanwhile, PC sales -- an Intel stronghold -- have suffered years of decline. Sales of laptops and desktops fell 5.7% in 2016, according to International Data Corp. Analysts generally agree that the decline shows signs of stabilizing as extant PCs age and vendors introduce new designs and form factors, but they don't expect it to reverse in the long term.
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The business selling server chips is healthier, thanks to sales to large-scale cloud computing services such as Alphabet Inc.'s Google Cloud Platform, Amazon.com Inc.'s Amazon Web Services, Microsoft Corp.'s Azure, which continue to spend billions building data centers to manage the rising tide of online data and services.
"In 2017 and beyond, we expect server revenue to offset declines on the PC side," said Bill Kreher, an analyst with Edward Jones.
Intel plans in the coming year to introduce the first data storage products using a high-performance memory technology known as 3D XPoint that is based on a fundamentally different way of managing digital bits. Intel believes it has the potential to replace conventional memory altogether.
For the quarter, operating profit from the server chip business was $1.88 billion, up 14% year on year, on revenue of $4.67 billion.
The PC chip business for the quarter contributed operating profit of $3.52 billion, up 30% year on year, on revenue of $9.13 billion.
Overall for the quarter, the Intel reported 73 cents in earnings per share, or 79 cents per share on an adjusted basis, on revenue of $16.37 billion. Analysts surveyed by Thomson Reuters expected an average of 74 cents a share in adjusted earnings on $15.75 billion revenue.
For 2017, the company estimates $2.80 a share in adjusted earnings on flat revenue. Analysts projected $2.81 a share in adjusted profit on $60.91 billion in revenue.
For the first quarter, the company guided for adjusted earnings of 65 cents a share on revenue of $14.8 billion. Analysts were calling for 61 cents and $14.53 billion, respectively.