By Stephen Nellis
(Reuters) – Intel Corp <INTC.O> on Thursday missed third-quarter revenue estimates for its data-center chip unit as the COVID-19 pandemic crippled sales to government and business customers, sending its shares down 10%.
Revenue from Intel’s data-center business fell 7% to $5.9 billion in the reported quarter, while analysts on average had expected revenue of $6.21 billion, according to FactSet.
Intel is the dominant provider of processor chips for PCs and data centers, but the company has struggled with manufacturing delays, saying in July that its next generation of chipmaking technology has slipped six months behind schedule.
The pandemic has given Intel a boost in the form or surging laptop sales as employees and students work and learn from home. Sales in its PC group were $9.8 billion, beating analyst estimates $9.09 billion, according to FactSet.
But Intel sold a higher volume of less profitable chips in its PC business, driving operating margins down to 36% in the third quarter from 44% a year earlier.
“You’re seeing the demand shift from desktops and higher-end enterprise PCs to the entry-level consumer and education PCs,” Chief Financial Officer George Davis told Reuters in an interview. “Even though the volume is good, your (average selling prices) are coming down, so that impacts your gross margins a little bit.”
Davis said a similar dynamic hit the data center business, where spending by government and business customers plummeted 47% after two quarters of growth and operating margins dropped from 49% to 32%. While cloud computing customers and operators of 5G networks helped make up for some of the shortfall, those chips are lower priced, Davis said.
Intel may also be giving ground on price to retain market share and fend off rivals such as Advanced Micro Devices Inc <AMD.O> and Nvidia Corp <NVDA.O>. Those competitors use outside manufacturers and have capitalized on Intel’s woes to gain market share in both data centers and PCs, with AMD in particular hitting its highest market share since 2013 earlier this year.
Intel, however, said a 10-nanometer chip factory in Arizona had reached full production capacity and that it now expects to ship 30% higher 10nm product volumes in 2020 compared to January expectations.
Excluding items, it earned $1.11 per share, in line with estimates, according to IBES data from Refinitiv.
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 Korea’s SK Hynix <000660.KS> in a $9 billion all cash deal, with Intel hanging on to a more advanced memory chip unit and using the cash to invest in other products.
(Reporting by Munsif Vengattil, Ayanti Bera and Stephen Nellis; Editing by Anil D’Silva and David Gregorio)
