US-based chipmaker Intel on Thursday revealed a gloomy outlook for 2019 as China’s economy started consuming fewer microchips.
Intel’s revised outlook follows a similar warning earlier this week from chipmaker Texas Instruments, Reuters reported.
Intel cut its full-year revenue forecast to $69 billion with an operating margin of 32 percent as against the earlier revenue target of $71.5 billion. Capital spending will continue to be $15.5 billion in 2019, Intel said.
Intel reported total revenue of $16.1 billion in the first quarter of 2019 without registering any growth. Intel’s gross margin fell to 56.6 percent in Q1 2019 from 60.6 percent in Q1 2018. Intel reported net income of $4 billion vs $4.5 billion.
Intel achieved 4 percent growth in the PC-centric business, which caters to PC makers, to $8.6 billion. The marginal growth in PC-centric business was due to a strong mix of Intel’s higher performance products and strength in gaming, large commercial and modem.
Intel’s data-centric revenue declined 5 percent to $7.42 billion. Intel’s cloud segment, part of the Data Center Group (DCG), grew 5 percent. Intel’s communications service provider segment fell 4 percent and enterprise and government revenue dropped 21 percent.
Internet of Things Group (IOTG) revenue grew 8 percent. Intel’s Mobileye achieved first-quarter revenue of $209 million (+38 percent). Intel’s memory business fell 12 percent due to challenging pricing conditions. Intel suffered a decline in its memory chip business, affected by the same pricing declines that have hurt rivals such as Samsung Electronics and Micron Technology.
Intel’s Programmable Solutions Group (PSG) revenue dipped 2 percent.
Intel CEO Bob Swan said: “Customers in China had absolutely bought extra data center chips last year due to fears of a tariff or supply constraints owing to the U.S.-China trade dispute.
“The belief at the time was that they were ordering well ahead of what their real needs were, but the expectation was that they would consume that over the course of Q4 and Q1,” Swan said. “But today we think … it’s not being consumed quite at that level; there’s going to be another quarter.”
A year-long U.S.-China trade war and weakening smartphone sales have taken a toll on the global semiconductor industry. Investors are banking on the launch of 5G telecom networks and demand for chips used in self-driving vehicles to boost growth. Swan said a 30 percent boost in programmable chips that go into 5G networking equipment showed early gains for Intel.
Intel’s business unit that sells modem chips to connect Apple Inc’s iPhones to wireless data networks was a growth spot, despite Intel’s announcement last week that it would exit the market for 5G modem chips.
Swan said Intel expects to continue shipping 4G modems, though, as is customary for Intel, he did not mention Apple by name.
“Our expectation is we will continue to deliver on the 4G modem throughout the course of this year, including the second iteration of that product coming in the fall back-to-school season,” Swan said.
The Santa Clara, California-based chipmaker estimated profit of 89 cents per share on revenue of $15.6 billion for its second quarter that ends in June 2019.