Intel Corporation (NASDAQ:INTC) is slowly reducing its reliance of the slowing PC market. However, slow growth in the sale of chips for Internet of things and data centers is evoking concerns of whether the business has the capacity to offset weaknesses in the PC business.
Concerns Over Data Center Business
Revenue from the sale of PC chips was down by 1%, better than initially feared. It was an impressive showing considering the sharp decline in the sale of laptop and desktop machines. The PC business fared considerably better, because most buyers chose to buy powerful processors that have better margins. Selling price for the chips was up by 17% compared to the fourth quarter of 2014.
The data center group, which was being looked upon to offset weaknesses in the PC division registered a 5% increase in sales. That is less than half the 12% sale growth posted in the third quarter. Revenue for IoT chip business came in at $625 million. Revenue from the data center division on the other hand came in at $4.3 billion accounting nearly half of Intel’s overall profit
A 5% increase in sale is already evoking concerns considering analysts expected a double-digit percentage gains. Intel finance chief, Stacy Smith, has already defended the slow growth reiterating that it did not reflect a fundamental change in demand.
Even with the defense, the apparent slowdown is worrisome as it evokes concerns about Intel Corporation (NASDAQ:INTC)’s ability to sustain recent momentum. Shares fell by about 5% on the concerns.
Cautious Guidance
Intel’s net profit for the quarter declined by 1% to $3.61 billion compared to $3.66 billion posted a year earlier. Total revenue, on the other hand, was up by 1% to highs of $14.9 billion helping offset two consecutive quarters of declines. Analysts polled expected revenues of $14.8 billion.
For the current quarter, Intel Corporation (NASDAQ:INTC) expects revenues of between $14 billion and $14.1 billion, against analysts’ estimates of $13.89 billion. A cautious financial guidance for the current fiscal year according to CEO Brian Krzanich is a reflection of ongoing weakness in the Chinese economy.
