Intel reports better-than-expected earnings as data center chips grow 13% to $4.5 billion

Intel reported third-quarter earnings that beat analyst estimates, driven by revenues from data center chips and the Internet of Things. And it sounds a lot more bullish than it had about its core PC chip market.

Intel had signaled that this quarter would be better on September 16, when it said sales would be in the $15.3 billion to $15.9 billion range as PC sales improved. Intel launched its Kaby Lake processors, or 7th Generation Core processors, for the fall season to try to boost PC sales, and the company also benefited from data center revenue growth.

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Analysts had expected Intel to report earnings of 73 cents a share on revenue of $15.6 billion. The company reported non-GAAP earnings per share of 80 cents a share, compared to 66 cents a year ago. Revenue was $15.8 billion, compared to $14.5 billion a year ago.

In the first quarter, Intel said it would lay off 12,000 employees. That was a clear sign that Intel intended to do something dramatic to deal with its weakness in mobile chips and the steady decline of the personal computer. Intel is a bellwether for the PC market and the whole electronics industry.

“It was an outstanding quarter, and we set a number of new records across the business,” said Brian Krzanich, Intel CEO, in a statement. “In addition to strong financials, we delivered exciting new technologies while continuing to align our people and products to our strategy. We’re executing well, and these results show Intel’s continuing transformation to a company that powers the cloud and billions of smart, connected devices.”

The company generated $5.8 billion in cash from the quarter and paid $1.2 billion in dividends. It also spent $457 million to buy back stock.

Intel said that its Client Computing Group (the core PC business) had revenue of $8.9 billion in the third quarter, up 21 percent from the previous quarter and up 5 percent from a year ago. Data center revenue was $4.5 billion, up 13 percent from the previous quarter and up 10 percent from a year ago.

Internet of Things group revenue was $689 million, up 20 percent from the previous quarter and up 19 percent from a year ago. Non-volatile memory revenue was $649 million, up 17 percent from the previous quarter and down 1 percent from a year ago. Intel Security Group (which is being spun off) had revenue of $537 million, flat sequentially and up 6 percent from a year ago. Programmable solutions revenue was $425 million, down 9 percent sequentially.

Intel has 105,600 employees, down from 106,500 earlier this year.