Intel said that it had missed fourth quarter sales estimates thanks to the fact that China is not buying its chips and no one wants its data centre and modem chips other than Apple and it insisted that they had enough sweeteners in the contract to kill a diabetic elephant.
The company’s shares fell 6.7 percent in extended trading as the news further stoked fears of an industry slowdown after sales warnings from Apple, Samsung Electronics, and Taiwan Semiconductor earlier this month pointed to stagnating smartphone demand and a cooling Chinese economy.
Those fears had lifted briefly earlier this week with better than expected quarterly results from Texas Instruments, Xilinx and Lam Research. But after Intel’s report on Thursday, shares of smaller rival AMD which reports results next Tuesday and Nvidia fell.
Intel said weaker demand from China hurt the company’s data centre chip business, which has driven growth in recent years as PC sales have slowed and cloud-based services have become more popular.
In an interview, Intel Interim Chief Executive Bob Swan said data centre providers tend to make large purchases in spurts and then spend time “digesting” the chips as they build out their centres.
Sales in China fell because some buyers there - especially cloud computing vendors - seem to have bought chips earlier than usual last year because of fears about U.S.-China trade tensions, Swan said. US cloud computing vendors continued their usual buying patterns throughout the year, he added.
“I do believe there was earlier buying [among Chinese cloud customers] for server-type products in the course of the second and third quarter of last year”, Swan said. “But overall I would say ... the prospects and the health of the industry are as bright as they’ve ever been. We’re just in a digesting period.”
Intel had been insulated from swings in Apple’s iPhone supply chain because it was not a significant supplier. But suddenly it became the sole provider in 2018 of iPhone modems as Apple tried to punish Qualcomm for not doing what it was told. Apple cut its revenue forecast, citing weak demand in China.
Swan said Intel’s modem business grew by 60 percent over last year but still came in about $200 million below target. The modem unit had “fantastic growth, but weaker than we expected, and as a result that impacted our revenues for the quarter”, Swan said.
Intel forecast first quarter revenue of $16 billion and adjusted earnings of 87 cents per share. Analysts on average were expecting revenue of $17.35 billion and a profit of $1.01 per share, according to IBES data from Refinitiv.
Fourth quarter revenue in the higher margin data centre business came in at $6.07 billion, below expectations of $6.35 billion, according to financial and data analytics firm FactSet.
Revenue in the client computing business, which includes sales to PC makers, was $9.82 billion, missing FactSet estimates of $10.01 billion.
Intel reported net income of $5.20 billion, or $1.12 per share, for the fourth quarter ended Dec. 29, compared with a loss of $687 million, or 15 cents per share, a year earlier.
Net revenue rose to $18.66 billion from $17.05 billion but missed estimates of $19.01 billion.
