Intel Sees Record Q3 Revenue, but Takes a Hit on Forecast

Officials gave lower-than-expected projections for both Intel's overall business and its important data center unit, which they expect will see single-digit growth.

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Intel saw a lot of growth in most of its business segments in the third quarter, but the outlook for its data center unit and the company's overall business caught the attention of many analysts.

Officials with the chip maker released the company's most recent quarterly financial numbers Oct. 18, which included revenue hitting a record $15.8 billion—a 9 percent increase over the same period in 2015—and profit also growing 9 percent, to $3.4 billion. Not only did Intel see growth in its Data Center and Internet of Things (IoT) groups, but its beleaguered PC business grew sales by 5 percent year over year, to $8.9 billion.

This came despite the continuation of the years-long contraction in the global PC market, which has been hurt since late 2011 by the rise in popularity of mobile devices including smartphones, tablets and phablets; the trend among consumers and business users to hold onto their systems longer than in the past; and the relatively weak demand among consumers, particularly in emerging markets.

Analysts with IDC and Gartner said that in the third quarter, worldwide shipments fell 3.9 percent to 5.7 percent, respectively. While IDC analysts were somewhat optimistic the PC market may be stabilizing, Gartner analysts seemed more pessimistic, positing that some PC users may never buy another system, opting instead for their mobile devices.

Intel CEO Brian Krzanich was upbeat about the quarter.

"It was an outstanding quarter, and we set a number of new records across the business," Krzanich said 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."

However, it was the overall outlook for the company—and its lowered projections for the Data Center Group, which includes processors for servers—that is causing concern among analysts. For the fourth quarter—a traditionally strong one for the chip maker—Intel is calling for $15.7 billion in revenue, give or take $500 million, a number lower than what had been expected.

At the same time, Intel officials reportedly said that growth for the Data Center Group—which makes up about a third of all Intel revenues—was now expected in the high single digits, lower than the double-digit growth that was forecast earlier this year.

On a conference call with analysts and journalists, Krzanich reportedly said that sales of cloud systems and networking gear were strong, but that there was weakness in the enterprise space. The Data Center Group saw revenue of $4.5 billion, a 10 percent increase year over year, but the forecast was disappointing.

Intel over the past year has been undergoing a high-profile pivot away from PC chips, which account for almost two-thirds of the company's revenues. Most PC and components makers have been hurt financially by the slowdown in the global market and have tried to reduce their dependence on PCs by focusing on such growth areas as IoT, data center systems, artificial intelligence, drones and virtual reality. Intel has been doing the same, with the goal of becoming the key vendor of technologies for an increasingly connected and cloud-centric world.

An important part of that plan is for Intel to continue to grow its dominance in the data center.

As part of its realignment, Intel officials in April announced the company was cutting 12,000 jobs. They said the company now was going to be hit with $2.3 billion in restructuring and other charges, and that about $1.8 billion already had been paid out. Another $250 million will be paid this quarter, with the rest being paid by mid-2017.

In addition, in September the company announced it was spinning out its cyber-security software business in a partnership with private equity firm TPG. The business will become an independent company that will keep the McAfee name.