Intel Corp.'s quarterly earnings soared 45%, as strong sales of high-end processor chips outweighed high costs in what is normally its most profitable business.
Revenue rose 8% to $14.8 billion in the first quarter. Intel benefited especially from improvement in the personal-computer business, with operating profit in the segment that sells PC chips jumping 61% from a year earlier, as sales rose 5.7% to $7.98 billion.
Amid the overall strength, though, profit in the division that sells chips for the servers used in data centers was hurt by an earlier shift to a more advanced manufacturing process that can improve chip performance but initially costs more. Intel said operating profit in its data-center division narrowed by 16%, while revenue rose 5.8% to $4.23 billion.
Shares fell nearly 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 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, and 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% falloff.
Sales of server chips have been expected to compensate for any PC shortfalls in 2017, 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 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, Intel reported net profit of 61 cents a share. Adjusted earnings, excluding restructuring charges and certain items arising from acquisitions and related taxes, were 66 cents a share. Analysts surveyed by Thomson Reuters expected adjusted earnings of 65 cents per share on $14.81 billion in revenue.
For 2017, Intel raised its adjusted profit projection by a nickel to $2.85 a share, and said it expects $60 billion in revenue. It had previously guided for the top line to remain flat from 2016's $59.4 billion.
Write to Ted Greenwald at Ted.Greenwald@wsj.com
(END) Dow Jones Newswires
April 28, 2017 02:47 ET (06:47 GMT)