Intel Cuts Q1 Revenue Outlook as Business PC Sales Slow

The world's top chip maker slashes its projection by $900 million, citing slower-than-expected SMB PC refreshes and a challenging economy in Europe.

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Intel, which saw record revenues in 2014 due in part to a resurgent global PC market, is slashing its first-quarter revenue projections by $900 million due to weaker demand in the business PC space than officials had expected.

Company executives said they now expect revenues for the first three months of year to come in at about $12.8 billion, a drop from the $13.7 billion in quarterly revenue they predicted in January. Much of the strength behind the stabilizing PC market last year was the refresh by corporations of their PCs as they migrated to Windows 7 from the Windows XP operating system—for which Microsoft ended support in April 2014.

However, Intel officials said small and midsize businesses have been slower to move away from Windows XP than they expected. In addition, they cited the "challenging macroeconomic and currency conditions" in Europe as another reason for the weak business desktop PC demand and lower-than-expected inventory levels across the PC supply chain.

Intel's announcement "was a little surprising because there was a fair amount of momentum on the business side" of the PC space, Bob O'Donnell, principal analyst with TECHnalysis Research, told eWEEK. "It's a disappointment and it reflects the fact that there continue to be challenges in the PC business."

It was anticipated that SMBs would break away from Windows XP later than larger enterprises, but they apparently are taking longer than expected to make the move, O'Donnell said.

Intel and other tech vendors watched as the global PC market—which had seen sales drop sharply since 2011, due in large part to the rise of tablets—stabilized last year. Intel CEO Brian Krzanich said the Windows XP situation had an impact, but so did other factors, including new PC designs—such as two-in-one systems—that his company and others were pushing.

That helped Intel grow its 2014 revenues by 18 percent over the year before. The chip maker's PC Client Group's revenues in the fourth quarter of 2014 grew 3 percent from the same period in 2013, to $8.9 billion. For all of 2014, the PC business' revenues came in at $34.7 billion, a 4 percent increase.

"Intel is in a very different place today than we were just 12 months ago," Krzanich said when announcing the 2014 numbers in January. "We are participating in a broader range of devices and we are [growing] in emerging segments. These are the trends we'll build on in 2015, bringing us closer to our vision: If it's smart and connected, it does its best with Intel."

However, one of the trends the company may have to contend with in 2015 is a softer PC market. TECHnalysis' O'Donnell said he is forecasting a drop in worldwide PC sales this year. While mature markets like the United States remain relatively strong, emerging markets continue to be a challenge, he said.

At the same time, businesses still sitting on Windows XP or using Windows 7 may wait to upgrade their systems until Microsoft releases the upcoming Windows 10, O'Donnell said. Windows 8 has not been widely embraced—"Windows 8 was sort of the Windows Vista two, the version people step over," he said—while initial responses to Windows 10 have been strong. That could mean that the next corporate push for PCs may not be seen until 2016 or 2017, which would be challenging to the likes of Intel, Advanced Micro Devices, Lenovo, Hewlett-Packard and Dell, given that "a huge percent of the PC market is refreshes," O'Donnell said.

Still, he is optimistic about the PC market. Not only is Windows 10 on the horizon, but tablet sales continue to tumble and as Internet connectivity continues to grow in the varied regions known as the emerging markets, the opportunities for PC sales in those areas also increase.

The same day that Intel announced its revised revenue forecast, IDC analysts noted that the fourth quarter in 2014 was the first time tablet shipments declined year-over-year (by 3.2 percent), and scaled back their projections for the next five years.