Data Center, IoT Help Loosen Second-Quarter PC Noose Around Intel's Neck

Intel on Wednesday posted earnings for its second quarter ended June 27 that beat analysts' estimates, as the company's booming data center business offset the gap caused by a struggling PC market.

’Second-quarter results demonstrate the transformation of our business as growth in data center, memory and [Internet of Things] accounted for more than 70 percent of our operating profit and helped offset a challenging PC market," said Intel CEO Brian Krzanich.

The company posted earnings of 55 cents per share on sales of $13.2 billion, better than the outlook of analysts polled by Thompson Reuters, which estimated 50 cents per share on sales of $13.04 billion. Intel shares soared 7.8 percent in after-hours trading to $32.

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While Intel's Client Computing Group sales dipped 14 percent year over year, its Data Center Group and Internet of Things Group remained strong, with sales up 10 percent year over year and 4 percent year over year, respectively.

Despite beating analysts' estimates, Intel's earnings fell 4.6 percent from the year-ago quarter, when the Santa Clara, Calif.-based company reported 55 cents per share on sales of $13.8 billion.

The earnings call follows a rough quarter for the PC market. PC shipments in the second quarter dipped almost 12 percent, according to market research firm IDC, with a mere 66 million units as opposed to the 75 million shipments in the same quarter last year.

IDC indicated that channels' reducing inventory ahead of the Windows 10 release as well as stronger year-ago shipments driven by Windows XP's end of support have put a strain on the market in the past quarter.

Despite a dip in PC shipments, Intel partners remain bullish on the company's outlook for personal computing, particularly with Microsoft's July 29 release date of Windows 10 and Intel's release of Skylake later in the year.

"Business hasn't stopped, just slowed down from last year's really healthy pace," said Randy Copeland, president and CEO of Velocity Micro, a system builder and Intel partner based in Richmond, Va. "The announcement of the impending Windows 10 launch was the key reason that customers have slowed down this year, but that's about to change. We are all expecting, based on market feedback, that the launch of Windows 10 will jump-start the refresh cycle for PCs."

Intel has been dealing with the slow PC market, as well as the inherent shift that many manufacturers are grappling with from the client architecture to the cloud, through a series of personnel transitions this quarter.

In early July, the company announced that several executives were leaving the company, including Intel President Renee James, Intel Capital President Arvind Sodhani, Vice President Mike Bell, who led Intel's Mobile & Communications Group and the New Devices Group, and General Manager and Corporate Vice President Hermann Eul. Additionally, the company made organizational changes, including merging its tablet and long-term agreement phone businesses with its PC Client Group.

Patrick Moorhead, president and principal Analyst of Moor Insights & Strategy, a tech analyst firm based in Austin, Texas, said that he expects a PC pickup in the second half of the year as OEMs begin to come out with new $499 to $599 thin and light form factors.

"We're looking to see some signs of life for PCs in the third and fourth quarter," said Moorhead. "The second quarter has always been bad for PCs, and this second quarter was worse than people expected. But in the second half of the year, I think there's a lot of opportunity, with Windows 10 and Skylake coming out, particularly during the holiday time frame, while OEMs will have cheaper, sexy, thin form factors with long battery lives."