Intel's Q2 shines: Server chips trump PC, tablet worries

Intel's Q2 shines: Server chips trump PC, tablet worries

Summary: Chip giant Intel delivered a better-than-expected second quarter as it rode an upgrade cycle for corporate PCs and data centers.

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Chip giant Intel delivered a better-than-expected second quarter as it rode an upgrade cycle for corporate PCs and data centers.

Intel reported second quarter earnings of $3 billion, or 54 cents a share, on revenue of $13 billion, up 21 percent from a year ago. Non-GAAP earnings were 59 cents a share. Wall Street was looking for earnings of 51 cents a share on revenue of $12.83 billion. Intel's gross margins of 61 percent in the second quarter were in line with expectations.

Going into Intel's earnings report, analysts had significant questions about how the company would handle slowing PC sales and the decline of netbooks. Indeed, Intel's Atom revenue was $352 million, down 15 percent from a year ago. That revenue tally indicates netbooks are losing out to tablets. In addition, Intel is now landing tablet design wins.

Intel executives have been missing about the excessive focus on the company's tablet and smartphone positioning vs. ARM-based rivals. Intel's argument is that it is already a mobile device player because it powers all the data centers that send content to them via cloud computing.

The quarter was carried by Intel's server chips and corporate demand. In other words, data center upgrades trumped any worries about anemic PC sales. In a statement, Intel CEO Paul Otellini said:

“Strong corporate demand for our most advanced technology, the surge of mobile devices and Internet traffic fueling data center growth, and the rapid rise of computing in emerging markets drove record results."

In prepared remarks, Intel CFO Stacy Smith said:

From a market standpoint, the quarter played out as expected with strength in emerging markets and enterprise, offset by weakness in the mature market consumer segment. We continue to benefit from the strength of our product line-up as mix within both servers and clients was better than expected. Demand for our latest product, Sandy Bridge, remains strong and is the fastest ramping product in our company’s history.

Stacy expanded upon that point during the quarterly investors conference call, noting that PC supply inventories are healthy but did not grow this quarter:

The explosion of devices that compute and connect to the Internet continues to drive the build out of the cloud and fuel our Data Center Group growth. Our embedded business is growing at a rapid pace as the demand for both performance and low power from the Internet drives architectural conversions for Intel. Emerging markets already make up more than half of our revenue and as the technology that we sell becomes more affordable to billions of consumers, we will continue to see robust growth from emerging markets. These are the market forces that drove first half revenue growth of 23% from the first half of 2010. And these are the market forces that give us confidence as we enter the second half of 2011.

As for the third quarter outlook, Intel projected gross margins of roughly 64 percent with revenue of $14 billion, give or take $500 million. Wall Street was expecting gross margins of 63.79 percent with revenue of $13.46 billion and earnings of 58 cents a share.

For 2011, Intel said gross margins will be 63 percent with capital spending of $10.5 billion.

By the numbers for the second quarter:

  • Intel's PC client group delivered operating income of $3.28 billion on revenue of $8.32 billion.
  • The data center unit had operating income of $1.2 billion on revenue of $2.44 billion.
  • Intel's software group, led by McAfee, had an operating loss of $14 million on revenue of $511 million.
  • Other Intel architecture group, mobile primarily, had an operating loss of $33 million with revenue of $1.39 billion.
  • Asia-Pacific revenue was $7.39 billion, or 57 percent of revenue. Americas revenue was $2.9 billion, or 22 percent of sales. Europe was 12 percent of revenue and Japan chipped in 9 percent.
  • Intel ended the quarter with total cash of $11.53 billion.

Related:

Topics: Enterprise Software, Banking, CXO, Data Centers, Hardware, Intel, Servers, Storage

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10 comments
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  • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

    Envious of those margins.
    TKR1
    • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

      @TKR1 Make that, "Very envious" on my part! <a href="http://www.mix-djs.net">DJ agency</a>
      mrswilliamson
  • Big deal.

    Apple makes double the profits and double the revenues. Intel is irrelevant.
    MSFTWorshipper
    • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

      @MSFTWorshipper any company half the size of apple with similar margins is clearly irrelavant... though the mobile device space is exploding, it hasn't shrunk the PC market, just slowed it in all its hugeness,
      beenman500
      • Intel's margins are 1.5 better than Apple's; yet no one calls Intel's CPUs

        @beenman500: 'overpriced'.

        <b>Double standards</b>, as always.

        (Intel gets no better percentage than Apple in net profit -- despite having way better margins -- only because they spend too much money on non-manufacturing expenses.)
        DDERSSS
      • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

        The PC market maybe shrinking but the cloud computing market is growing and Intel knows that. Intel' release of the single server ship http://cloudtechsite.com/news/intel-develops-cloud-chip.html is a clear sign that Intel is preparing to take it to the next level.
        Bonchucin
  • Apple makes bank.

    They let Intel spend all the R&D on Sandy Bridge & Ivy Bridge and reap the rewards...
    MSFTWorshipper
    • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

      @MSFTWorshipper
      Well the earlier enterprises, developper and customers acknowledge that Apple is some kind of vampiric/parasitic enterprise the better it would be for them. [/sarcasm]

      Seriously, i am not suprised that Apple products are successful as they have some kind of quality but i am incredibly suprized that they are that successful.
      I mean seriously we have a company for whom the word customers freedom is an anomaly, which make tons of money on the behalf of other companies and developpers, which has a behavior that no one would accept from any other company, and yet everyone is happy about the situation, millions rush to buy products from this company and many even worship it.
      This is kind of insane.

      Apple is becoming a much worse equivalent of what Microsoft was ,as at least Microsoft somehow cares about its partners even sometimes at its own expenses.
      Apple cared of noone, not even its shareholders or its partners.
      timiteh
      • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

        @timiteh
        "the word customers freedom is an anomaly"

        Until I am forced to use their products I wouldn't say they are taking away my freedom. The product does what's advertised. If I wanted more I would buy something else that offers more.

        "which has a behavior that no one would accept from any other company"

        I assume you are referring to patent lawsuits. I would be surprised if Apple sued more than it was sued. The problem is our patent laws not Apple.

        "and many even worship it. This is kind of insane. "

        You think many worship Apple? You are right, Apple haters are kind of insane.
        anono
      • RE: Intel's Q2 shines: Server chips trump PC, tablet worries

        @anono

        Well, when serious Apple fan's brains were examined by researchers, they showed the same kind of brain activity when viewing Apple products as people of faith do viewing religious iconography.

        http://www.pcmag.com/article2/0,2817,2385502,00.asp

        While not the majority of Apple users, or even a particularly large single-digit percentage of Apple users, there is core group of fans for which "worship" is actually a pretty good descriptor.

        While many companies have a few vehement supporters, the sheer numbers and fervor of the Apple group is unusual for a public company and indicates that someone within Apple is doing a very good job.
        SlithyTove