Intel misses slightly on earnings — but PC sales didn’t die in Q1 after all

Intel reported slightly worse earnings than expected as PC sales took a vacation and tablets gained momentum in the first quarter.

Intel’s earnings are watched closely as a bellwether for the computing ecosystem. The news isn’t so bad for PC makers, who were braced for the worst. Market researcher IDC reported last week that first-quarter PC sales dropped 13.9 percent — the biggest quarterly fall in PC industry history — in the first quarter as consumers shifted their purchases away from PCs to mobile and tablet devices.

Due in part to weak demand for Microsoft’s Windows 8 operating system, first quarter PC sales were a disaster, IDC said last week. But Intel evidently doesn’t believe the PC industry is in such bad shape, and it noted its sales were down only 6 percent for its PC client group. Intel is the world’s biggest maker of microprocessors and the chips that go with them inside a computer.

Intel’s results weren’t so bad in the previous period, when it posted better-than-expected earnings for the fourth quarter ended Dec. 31, as PC sales weren’t as weak as forecast and server chip sales were strong. In that quarter, PC sales fell just 5 percent. Over the past year, Intel’s stock price has fallen 22 percent.

Intel’s earnings per share were 40 cents on revenue of $12.60 billion. Analysts expected Intel to report net income of 41 cents per share on sales of $12.61 billion. And before the results, analysts were looking for earnings of 40 cents on sales of $12.9 billion for the second quarter ending June 30. Intel now expects sales of $12.9 billion, and gross profit margins of 58 percent.

“Amid market softness, Intel performed well in the first quarter, and I’m excited about what lies ahead for the company,” said Paul Otellini, Intel president and CEO, said in a statement. “We shipped our next generation PC microprocessors, introduced a new family of products for microservers, and will ship our new tablet and smartphone microprocessors early this quarter. We are working with our customers to introduce innovative new products across multiple operating systems. The transition to 14nm technology this year will significantly increase the value provided by Intel architecture and process technology for our customers and in the marketplace.”

Intel also has a strong business in server chips, which accounted for $10.7 billion of its $53 billion in revenues last year. In after-hours trading, Intel’s stock price was up 2.17 percent.

In the first quarter, Intel had previously predicted revenue of $12.7 billion, 58 percent gross margins, and MG&A spending of $4.6 billion.

Intel has been expecting low single-digit revenue increases for 2013, with gross margins at 60 percent. Those expectations remain unchanged. Capital spending was previously targeted at $13 billion, but that has now been revised downward to $12 billion.

Intel is shifting to meet mobile device demand. It has created laptop chips that dissipate as little as 7 watts, and its code-named Haswell processor coming mid-year is expected to be even better at power consumption. At the Consumer Electronics Show in Las Vegas, Intel said it was working with seven major vendors of smartphones who have launched Intel-based smartphones in 25 countries. But the revenue from those deals is a drop in the bucket compared to the revenues Intel gets from the PC chip business.

Otellini, 62, is retiring early from his job (Intel’s mandatory retirement age is 65). His successor has not yet been named.

During the first quarter, the PC Client Group’s revenue was $8.0 billion, down 6.6 percent from the prior quarter and down 6 percent from a year ago. Data Center group revenue was $2.6 billion, down 6.9 percent sequentially and up 7.5 percent from a year ago. Other Intel architecture revenue was $1.0 billion, down 3.9 percent sequentially and down 9 percent from a year ago. Gross profit margin was 56 percent, down 2 percentage points sequentially and down 8 percentage points from a year ago. Research and development plus MG&A spending in the quarter was $4.5 billion, in line with expectations of $4.6 billion.