Data Center Still a Bright Spot for Intel

Intel’s data center business helped buoy the company’s third-quarter results, even as the company forecast the PC business as getting worse before it gets better.

During the third quarter, Intel executives said, Intel’s PC processor business grew at about half the rate that the company expected. Worse still, Intel chief executive Paul Otellini said he expected that trend to continue into the fourth quarter, as OEMs bought half their usual amount of PC processors. That reflects weak demand for PCs, as well as a cautious approach to Microsoft’s Windows 8.

Within the data center, Intel said that sales to cloud customers soared by 50 percent compared to last year, while sales to storage customers grew by 27 percent. However, sales to corporate server customers softened, Otellini added. All told, Intel’s Datacenter business generated $1.21 billion in net income, down just 0.74 percent from the same period a year ago. The business produced $2.65 billion in sales, up 5.7 percent from a year ago.

Intel recorded $3.84 billion in net income, down 14.3 percent, on $13.5 billion in revenue, down 5.45 percent. Intel reported a profit of 54 cents per share; Wall Street had expected 50 cents per share on revenue of $13.2 billion, so Intel’s results beat the Street.

“During the last month, I’ve met with all of our major customers. And while the market remains tough, I’ve been encouraged to see a renewed appetite for innovation across the entire ecosystem,” Otellini said of the data center business, according to a transcript of the call.

Intel said that it expects to benefit from the build-out of the cloud, presumably from companies such as Facebook and Google, rather than traditional enterprise customers like Dell. But weak corporate demand also dragged down prices about 7 percent, Intel said, while unit sales dropped 1 percent. Traditionally, lower pricing has been a warning sign that a business may be able to taper off, but Intel’s manufacturing advantage—a technology generation or so ahead of its rivals—has generally been able to overcome the pricing weakness.

“In the data center what we saw was strong growth in the internet IP data center as the cloud was up actually 50 percent from a year ago, and it was offset and we started to see some weakness on the enterprise side and that’s where you are seeing a lower ASP is because of the different ASP between those two segments,” Stacy Smith, Intel’s chief financial officer, said on the call.

Otellini also said that rival ARM chips simply lacked the data-center features that the Intel Xeon does, including 64-bits and ECC, he said, acknowledging that those futures are due in future ARM iterations.

Instead, Otellini suggested, those servers could be run on Atom, including the current 32-nm chips and the upcoming 22-nm generation.

“The change that we have seen and we talked about at the pre-announcement was that the enterprise PC market has gone relatively flat now and I think that’s just a reflection of large corporations making hard decisions on CapEx versus people,” he added, “and where they want to put their investments and now that seems to have spilled over from the client side of the enterprise also the data center server part of the enterprise.”

Intel’s PC outlook may worry Wall Street, which has already received warnings from both IDC and Gartner that the third-quarter PC market fell more than 8 percent in units. Intel’s Smith said that the market is simply being cautious. Otellini, for his part, promoted Windows 8, although he said it was too early to tell how consumers would receive it.

Intel’s next-generation architecture, Haswell, is also expected to arrive about the same time of the year as its latest Ivy Bridge chips, which shipped in April. Otellini said that Haswell systems are expected in the first half of 2013.

 

Image: wavebreakmedia/Shutterstock.com

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