Intel revenue dips 4% to $18.3 bn as data centre spending drops

Intel said its third quarter revenue fell 4 percent to $18.3 billion as data centre sales dropped 10 percent while PC business revenue rose 1 percent.
Intel data center business revenue
Intel reported that margins decreased during the third quarter as PC consumers bought cheaper laptops and pandemic-stricken businesses and governments slashed data center spending.

The latest Gartner report said there will be 10.3 percent decline in data center spending in 2020 due to restricted cash flow during the pandemic.

The report indicates that the spending on global data center infrastructure is projected to grow 6 percent to $200 billion in 2021.

“The data center market is still expected to grow year-over-year through 2024,” said Naveen Mishra, senior research director at Gartner.

“Larger enterprise data centers sites to hit pause temporarily and then resume expansion plans later this year or early next. However, hyperscalers will continue with their global expansion plans due to continued investments in public cloud,” Naveen Mishra said.

Intel, the dominant provider of processor chips for PCs and data centers, has struggled with manufacturing delays. In July, it said its next generation of chipmaking technology was six months behind schedule.

Chip sales are booming, but customers want lower-priced chips rather than Intel’s pricier high-performance offerings, dragging down overall gross margins.

The pandemic has given Intel a boost in the form or surging laptop sales as employees and students work and learn from home. Sales in its PC group were $9.8 billion (+1 percent) during the third quarter.

Intel sold a higher volume of less-profitable chips in its PC business, driving operating margins down to 36 percent in the third quarter from 44 percent a year earlier.

“You’re seeing the demand shift from desktops and higher-end enterprise PCs to the entry-level consumer and education PCs,” Chief Financial Officer George Davis told Reuters in an interview. “Even though the volume is good, your average selling prices are coming down, so that impacts your gross margins a little bit.”

Davis said a similar dynamic hit the data center business, where spending by government and business customers plummeted 47 percent after two quarters of growth and operating margins dropped from 49 percent to 32 percent. Revenue from Intel’s data-center business fell 7 percent to $5.9 billion in the reported quarter.

While cloud computing customers and operators of 5G networks helped make up for some of the shortfall, those chips are lower priced, Davis said.

“The main issue for Intel moving into 2021 remains gross margin pressure and further deterioration of its leadership position due to its process node roadmap delays,” KinNgai Chan, analyst with Summit Insights Group.

Intel faces a challenge from rivals such as Advanced Micro Devices (AMD) and Nvidia. Those competitors use outside manufacturers and have capitalized on Intel’s woes to gain market share in both data centers and PCs, with AMD in particular hitting its highest market share since 2013 earlier this year.

Intel said a 10-nanometer chip factory in Arizona had reached full production capacity and that it now expects to ship 30 percent higher 10nm product volumes in 2020 compared to January expectations.

The company said it was expecting fourth-quarter revenue of about $17.4 billion, while analysts were expecting revenue of $17.36 billion.

Earlier this week, Intel said it would sell a money-losing memory chip business to Korea’s SK Hynix in a $9 billion all cash deal. Intel will be focusing on a more advanced memory chip unit.