Intel beats earnings estimates as Haswell laptops take off in third quarter

Updated 10/17 at 9:35am Pacific: Modified second-paragraph description of Intel’s role in the tech industry.

Intel beat earnings expectations for revenues and profits as overall revenues grew 5 percent in the third quarter, thanks to both healthy data center revenue and the launch of Haswell-based laptops and portables.

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Intel’s earnings are a bellwether for the PC industry, and as the leading semiconductor manufacturer worldwide it remains hugely significant to the tech industry overall. However, in some ways Samsung and the ARM ecosystem have eclipsed Intel as PC sales drop in the face of competition from smartphones and tablets, sectors where Intel is not as strong.

The quarter is the second presided over by new chief executive Brian Krzanich.

Intel said that revenue was $13.48 billion in the third quarter, up 5 percent from the previous quarter and roughly flat compared to $13.46 billion a year earlier. Net income was 58 cents a share, up 49 percent from the previous quarter and flat with a year ago. Analysts were expecting earnings per share of 53 cents and revenue of $13.47 billion.

“The third quarter came in as expected, with modest growth in a tough environment,” said Intel CEO Brian Krzanich in a statement. “We’re executing on our strategy to offer an increasingly broad and diverse product portfolio that spans key growth segments, operating systems and form factors. Since August we have introduced more than 40 new products for market segments from the Internet-of-Things to data centers, with an increasing focus on ultra-mobile devices and 2-in-1 [hybrid laptop-tablet] systems.”

During the quarter, Intel shipped its Haswell-based low-power chips, or fourth-generation Core processors, for laptops, all-in-ones, and hybrid 2-in-1 computers. Data center revenue was $2.9 billion, up 12 percent in the quarter compared to a year ago.

PC Client Group revenue was $8.4 billion, up 3.5 percent sequentially and down 3.5 percent from a year ago.

“Intel had a really good quarter which is a bit surprising given the PC market is still depressed,” said Patrick Moorhead, analyst at Moor Insights & Strategy. “PC’s were up and datacenter was up a lot in revenue, which has been paramount to their growth the last year. The true test for consumer PC affinity will happen in Q4 when buyers will have to choose from new phones, tablets, game consoles, smart watches, and new thin and light  2-in-1 PCs.”

In the previous quarter, Krzanich implemented one of the most significant management reorganizations in a decade. Intel previously said it expected revenue of $13.5 billion, plus or minus $500 million, and profit margins of 61 percent, plus or minus a couple of points.

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Intel is shifting to meet mobile device demand. It has created laptop chips that dissipate as little as 7 watts, and its codenamed Haswell processor coming midyear 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.

Before trading on Tuesday, Intel’s stock market value was $116 billion. By comparison, Apple’s was $450 billion, while Microsoft’s was $287 billion.

Intel’s stock closed at $23.41 a share on Tuesday, down slightly. In after-hours trading, Intel’s stock price is up 33 cents, or 1.42 percent, to $23.71 a share.

Intel spent $4.7 billion on research and development in the quarter, down slightly from a $4.8 billion estimate.

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For the fourth quarter, Intel predicted it would generate $13.7 billion in revenue, plus or minus $600 million. Gross profit margins are expected to be 61 percent, plus or minus a couple of points. For the full year, capital spending is expected to be $10.8 billlion.