Intel Tightening Budgets Despite Solid Quarterly Financials

Intel and its relatively new CEO Brian Krzanich are having to make some tough choices as markets change and its business evolves. The company is restructuring to kick-start its next growth phase from the PC economy to the IoT economy.

The venerable processor maker on April 19 reported first-quarter revenue of $13.8 billion, or 54 cents per stock share.

The Santa Clara, Calif.-based chip maker also revealed that it will cut 12,000 jobs globally, or 11 percent of its 107,300-person workforce, as the company starts to move away from its longtime business of selling PC processors and gravitate toward developing other types of chips.

Go here to read eWEEK’s summary of that news.

In the first quarter, net income improved 2.7 percent to $2.05 billion, or 42 cents a share, while sales climbed 7.2 percent to $13.7 billion, Intel said. Analysts on average had projected earnings of 37 cents and revenue of $13.8 billion.

Q2 Guidance Is Conservative

Second-quarter revenue will be about $13.5 billion, the company noted in its financial statement. Analysts estimated $14.2 billion, according to data compiled by Bloomberg.

Gross margin, the percentage of sales remaining after deducting the cost of production, is forecast to be about 61 percent in the current quarter, Intel said. That measure of profitability—the only one Intel projects—has remained above 60 percent annually since 2014 as high-priced, high-margin server chips have become a larger portion of Intel’s overall sales.

For the current quarter, the company offered guidance of $13 billion to $14 billion in revenue, slightly below analysts’ consensus of $14.2 billion.

Intel made a key personnel move, too. CFO Stacy Smith will move to a new role heading Sales, Manufacturing and Operations once the company completes a search for a new CFO. Intel is seeking candidates both internally and externally.

Intel kept its capital spending outlook the same, at $9 billion to $10 billion for this year.

Intel also said it would record a pretax restructuring charge of $1.2 billion in the second quarter. The company’s stock price was down 2.4 percent in after-hours trading to $31.20 at 2:30 p.m. Pacific time April 20.

One Analyst’s Perspective

“In spite of the announced layoffs, Intel had a good quarter and even showed PC growth in a very down PC quarter. In fact, all but one segment showed improvements year on year,” Patrick Moorhead of Moor Insights & Strategy told eWEEK.
“While there weren’t specific details on exactly where cuts would be made, it appears that the cuts would be made in non-growing PC markets. Intel says it will invest more in PC markets like 2-in-1s, gaming and home gateways. All we can assume is that cuts will be made in ‘mainstream’ productivity and consumer PCs not tied to gaming and 2-in-1s. What’s clear is that Intel will continue to invest in LTE and 5G radios.”
Strategically, Intel plans to take the savings in the mobile and PC business and double-down on investments in IoT, flash memory and data center products, Moorhead said.
“Data center has been an absolute profit dollar-driver, and Intel’s big bet in differentiated 3D and XPoint memory just increases the size of the basket,” Moorhead said.
“I’m really interested in the future to see if Intel announces anything on GPU compute technologies that have become a de facto standard in the future of neural networks.”