Intel slips margin, 10% slips as customers shift to cheaper chips


(Reuters) – Intel Corp INTC.O On Thursday, the latest quarter reported a decline in margins as consumers bought cheaper laptops and epidemic-stricken businesses and governments sent data center expenses down 10% in the news.

FILE PHOTO: Intel Corporation CEO Bob Swan gave an interview to Reuters outside the Fab 42 microprocessor manufacturing site on October 2, 2020, in Chandler, Arizona, US. REUTERS / Nathan Frandino / File Photo

Intel, a major provider of processor chips for PCs and data centers, has struggled with manufacturing delays. In July, it said the next generation of chipmaking technology was six months behind schedule.

Chip sales are booming, but customers want lower-value chips rather than Intel’s pricier high-performance offerings, which are pulling down overall gross margins.

The epidemic has prompted Intel to increase laptop sales as employees or students work and work and learn from home. According to FactSet, sales in its PC group were $ 9.8 billion, beating the analyst $ 9.09 billion.

But Intel sold higher volumes of low-profit chips in its PC business, reducing operating margins to 36% in the third quarter from 44% a year earlier.

In an interview, Chief Financial Officer George Davis told Reuters, “You are seeing a demand shift from desktop and high-end enterprise PCs to entry-level consumers and education PCs.” “Despite the volumes being good, your (average selling price) is coming down, which has little impact on your gross margin.”

Davis said there was a similar boom in data center business, where government and business customer spending fell by 47% after a two-quarter increase and operating margins fell from 49% to 32%. According to FactSet, revenue from Intel’s data-center business fell 7% to $ 5.9 billion in the analyst versus an reported quarter of $ 6.21 billion.

Davis said cloud computing customers and operators of 5G networks helped make up for some of the drawbacks, with the price of those chips being low.

“The main issue for Intel is rising in 2021, gross margin pressures remain and further deterioration in its leadership position due to delays in its process node roadmap,” Summit Insight Group analyst Kyungai Chan.

Intel is facing a challenge from rivals such as Advanced Micro Devices Inc. AMD.O And nvidia corp NVDA.O. They use competitive external manufacturers and they have capitalized on Intel’s woes to gain market share in both data centers and PCs, with AMD specifically hitting its highest market share since 2013 earlier this year Used to be.

However, Intel said that a 10-nanometer chip factory in Arizona had reached full production capacity and it now expects to ship 30% more 10nm product versions in 2020 than in January.

It earned $ 1.11 per share, excluding items, according to Refinitive’s IBES data.

The company said it was expecting fourth-quarter revenue of about $ 17.4 billion, while analysts were expecting revenue of $ 17.36 billion.

Earlier this week, Intel said it would sell a money-losing commodity memory chip business to SK Hynex of Korea 000660.KS The $ 9 billion all-cash deal uses cash to hang on to a more advanced memory chip unit with Intel and invest in other products.

The company also said it began a $ 10 billion share repurchase program in August.

Patrick Moorehead, lead analyst Moore Insights & Strategy, said, “Its stock is trading at 10 times earnings and looks cheap.”

(This story has been refined to add the missing word ‘down’ in paragraph 3)

Reporting by Munsif Vengatil, Ayanthi Berra and Stephen Nelis; Editing by Anil DeSilva and David Gregorio

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