Intel PC, Server Sales Drive Strong Q3

Strong PC and server sales for Intel offset an operational loss in mobile device component sales and combined to give the company overall strong results for its fiscal third quarter.

A boom in the company's third fiscal quarter legacy PC and server markets gave Intel its best-ever quarterly revenue and a strong profit, the company reported Tuesday after market close.

For the company's third quarter ended Sept. 27, Intel reported revenue of $14.6 billion, up 8 percent from a year earlier.

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Income for the quarter reached $3.3 billion, or 66 cents per share, compared to last year's $3 billion, or 58 cents per share.

Shares of Intel were trading up 2 percent in extended trading Tuesday to a recent market value of $159.13 billion.

The quarterly results came on the back of what Intel called record quarterly unit shipments of processors for PCs, servers, tablets, phones and devices for the Internet of Things, which combined gave Intel the first quarter in which its shipments exceeded 100 million microprocessors.

Third-quarter revenue for Intel's PC Client Group rose 9 percent year-over-year to reach $9.2 billion, while the company's Data Center Group revenue rose 16 percent over last year to reach $3.7 billion.

Revenue for Intel's Internet of Things Group reached $530 million, up 14 percent over last year, while the Mobile and Communications Group revenue of $1 million was consistent with expectations, the company said.

In terms of volume, Intel's PC Client Group microprocessor shipments rose 15 percent over last year while average selling price fell 5 percent. The company's Data Center Group shipments rose 6 percent while average selling price rose 9 percent. Notebook platform shipment volume rose 21 percent while average selling price fell 10 percent from a year ago. Desktop platform shipment volume rose 6 percent while average selling price rose 2 percent from the year-ago period.

The one business that lagged during the quarter was the company's Mobile and Communications Group, which posted an operational loss of $1.04 billion.

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Intel CEO Brian Krzanich said during a conference call with analysts Tuesday that Intel is doing well across the board with relatively few areas operating below expectations, including the slow adoption of 14-nanometer technology.

"Our vision is, if it's smart and connects, it's Intel," Krzanich said.

When asked during the question-and-answer period of the call about Intel's PC strength in the face of third-party analyst expectations that the third quarter PC sales would be flat, Intel CFO Stacy Smith said Intel saw the third-party data and did not have a view much different from that of IDC.

However, Smith said, Intel in the third quarter saw a return to normal supply lines for the PC market.

"That's different from a couple years ago when customers were looking at a muted supply line," he said.

Smith later explained that "muted" in that sense referred to a pulling back in supply lines due to lower sales expectations.

Intel has been doing what it believes is a very good job of managing its supply chain, Krzanich said. "Current inventory is very typical for the 1 percent seasonal growth we are watching for this quarter," he said.

When asked about the mix Intel is seeing for Android vs. Windows devices, Krzanich said the mix is playing out as forecasted, with 80 percent of the company's mobile component sales going to Android devices.

"Our mix pretty much represents what you'd see in the marketplace or if you walk into a store," he said.

When asked about whether innovation or a refresh cycle was driving the recent increase in PC upgrades, Smith said the Windows refresh, changes in form factors and the age of PCs was all important.

"We're seeing growth more broadly than just [from] upgrading Windows," he said.

Looking forward, Intel said it expects fourth fiscal quarter revenue of $14.7 billion, plus or minus $500 million. That compares to the $13.8 billion Intel reported for the fourth quarter of 2013. Intel also expects fourth quarter gross margin of 64 percent plus or minus a couple of percentage points, compared to 62 percent in the year-ago quarter.