Data centre chip business boosts Intel earnings

Data centre chip business boosts Intel earnings

Intel's transformation efforts appear to be paying off

Intel beat earnings expectations for the first quarter and raised its full-year revenue and profit forecasts on Thursday, driven by the biggest-ever quarterly jump in its data centre business and small-but-steady growth in its personal computer business.

Shares of the Santa Clara, California-based chipmaker rose 5.4 per cent to US$55.95 in after-market trading after it said it expects full-year revenue of US$67.5 billion, up US$2.5 billion from prior guidance.

Intel has been focused on transforming itself from a supplier of processors for personal computers to a maker of chips for growing data centre business and newer areas such as driverless cars and artificial intelligence.

That shift appeared to be taking hold as revenues for Intel's data centre business accounted for almost half of the company's revenue in the first quarter, the highest proportion ever.

"They certainly outperformed the most bullish expectations," said Kinngai Chan of Summit Insights Group.

Intel said fresh demand for applications such as artificial intelligence fuelled the data centre business. But Intel chief financial officer Robert Swan warned that the brisk growth of that business in the past two quarters, particularly from business customers building out their own computing clouds, would be hard to match in the second half the year.

"We do expect there to be deceleration for [data centre business] growth from first half to second half for sure," Swan said on a conference call with investors. "We hope we're wrong."

Still, the better-than-expected results and brighter forecast pushed shares to their highest in at least five years. The data centre results also suggest the chipmaker's large customers have not been deterred by two chip flaws that emerged earlier this year.

Intel said it plans to allot US$14.5 billion to capital spending this year, much of which will go toward building up its relatively new memory chip business.

But the company also said US$1.7 billion of its free cash flow for the quarter came from long-term supply agreements for its memory business, which could help protect the company against a drop in memory prices that has spooked chip investors this year. That business grew 20 per cent year over year to US$1 billion.

Intel executives also said that the unit that contains its modem chips that help Apple's iPhones connect to mobile data business will grow faster than the rest of Intel's sales. Intel's Swan said investments in that division to ramp it up could compress Intel's margins in the short term.

Last fall, Reuters reported that Apple had designed iPhones and iPads that could drop Qualcomm’s modem chips in favour of Intel chips, though it is not clear Apple has yet made a final decision.

Revenue from Intel's client computing business, which supplies chips to PC makers and is the biggest contributor to sales, rose 3 per cent to US$8.2 billion, beating estimates of US$7.91 billion, according to Thomson Reuters I/B/E/S.

Revenue from the data centre business posted a record gain of 24 per cent to US$5.2 billion, beating estimates of US$4.73 billion.

The company's net income rose to US$4.45 billion, or 93 cents per share, in the quarter ended March 31, from US$2.96 billion, or 61 cents per share, a year earlier.

Net revenue rose to US$16.07 billion from US$14.80 billion.

Excluding items, the chipmaker earned 87 cents per share.

Analysts on average were expecting Intel to report a profit of 72 cents per share on revenue of US$15.08 billion, according to Thomson Reuters I/B/E/S.

(Reporting by Sonam Rai in Bengaluru and Stephen Nellis in San Francisco; Editing by Chris Reese and Tom Brown)

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