Server Sales Save Intel From Poor Quarter

Intel CEO Brian Krzanich

Intel CEO Brian Krzanich

Intel Corp., a bellwether in the technology market, met analyst expectations for its third quarter earnings and profit, despite continued declines in PC sales. Saving Intel from a loss is a sharp uptick in server demand as enterprises and service providers continue to build out infrastructure that supports cloud computing and mobile devices.

The chipmaker posted revenue of $13.48 billion, roughly unchanged from the same period in 2012. Its forecast for the fourth quarter is $13.7 billion to $14.2 billion, which is roughly flat relative to the same period last year.

Hurting Intel is the continued PC slump. Chips sold to PC manufacturers is Intel’s largest source of revenue. Last quarter, global PC sales fell 8.6 percent; it was the six consecutive quarterly decline for the sale of conventional notebook and desktop computers. Meanwhile, Intel’s efforts to break into chips for mobile devices hasn’t gone well, causing further earnings pressure.

Saving Intel’s quarter is a 12 percent increase in demand for servers and a surprising 3.5 percent uptick in PC shipments in the U.S. Enterprises and service providers are investing in servers to expand their capacity to support cloud and distributed workforces. And, U.S. businesses are once again refreshing their PC fleets, relieving pressure from declining consumer sales.

While Intel CEO Brian Krzanich called the flat quarterly earnings report and lackluster forecast a “blip,” there are signs that Intel is taking the shifting marketplace seriously. The company, renowned for its research prowess, has cut capital expenditures by $1 billion, mostly in development. It’s also delaying the release of its next-generation chip, Broadwell, to the first quarter of 2014 – three months behind schedule.

Intel remains bullish on the PC market, believing the next generation of notebooks, convertibles and all-in-one machines will eventually spark a refresh of aging Wintel machines that do not have touch-interfaces, long battery life and limited processing performance. The bet is consumers that have flocked to tablets and smartphones will eventually want a more powerful PC to complement their mobile devices.

The uptick in U.S. PC sales is a positive sign, showing businesses are once again investing in office resources. In September, the Global Technology Distribution Council and NPD Research announced PC sales sold through distribution increased 14.5 percent so far this year; mostly on business demand. The release of Windows 8.1, the first iteration of Microsoft’s first touch-interface operating system, is this week and could drive further PC sales as the interface becomes more business-friendly.

While Intel is trying to find its way in the increasingly diversified and mobile world, its longtime customers are seeing it become a competitive threat. Last week, Meg Whitman, CEO of Hewlett-Packard, Intel’s largest customer, labeled the chipmaker a competitor, as it’s now selling security software and appliances through its McAfee division.