Intel Lowers Data Center Growth Forecast For Q4

Intel CEO Brian Krzanich told investors on the company's third-quarter earnings call Tuesday that Intel is lowering revenue expectations for its data center segment, which represents one of the chip maker's strongest businesses in a sluggish PC market.

Intel lowered its expectations for its data center business from 15 percent growth year over year in the fourth quarter to low-double-digit growth, sending Intel shares down as much as 3.5 percent in after-hours trading.

"While the third quarter exceeded our expectations for data center products, there may be pockets of time where sales decline such as a possible slowdown in the fourth quarter due to normal business cycles or due to the release of new technology," said Kent Tibbils, vice president of marketing at ASI, a Fremont, Calif.-based Intel system builder. "We are, however, still very optimistic about the long-term growth of the data center market and this remains a key strategic category for our company. We are continuing to invest resources in the space and I do not see that changing."

[Related: Intel CEO: Company 'Treading Water' In Sluggish PC Market, Buoyed By IoT, Data Center]

According to Krzanich, the lowered forecast stemmed from the expectation of fewer orders from cloud computing companies in the fourth quarter, as well as economic factors such as a slowdown in some Asian markets.

In the third quarter, Intel's data center business saw continued growth with 4.1 billion in sales, a 12 percent increase from the same quarter a year ago. That's in direct contrast with Intel's Client Computing group, hit by weak PC sales, which was down 7 percent from the year-ago quarter.

Intel has been relying on its big data business, as well as its Internet of Things business, as the company's PC chip business struggles.

Research firm IDC said PC shipments dipped 10.8 percent from last year's third quarter, as the market faces a transition period in the midst of a major operating system upgrade clouded by challenging financial conditions.

However, Patrick Moorhead, president and principal analyst of Moor Insights & Strategy, said Intel channel partners shouldn't be concerned about the company's big data business in the fourth quarter.

"I believe this is temporary and partners shouldn't be concerned at all," said Moorhead. "Channel partners should be focused on build-out of private cloud and the hardware, networking and services opportunities that come with it."

Despite concerns about Intel's Big Data Group, Intel executives assured analysts during the earnings call that the company continues investing heavily in all aspects of big data, including networking and infrastructure. ASI's Tibbils, for his part, said he recognizes the significance of Intel's big data segment to other parts of the Santa Clara, Calif.-based company's business.

"This segment is very important because it impacts so many categories including server platform processors, networking and enterprise-class SSD, all of which have higher ASPs than their client counterparts," said Tibbils. "I guess a possible challenge or concern for Intel might be if data center budgets are being prioritized on things that are not Intel core products such as networking infrastructure and security technologies."

Intel's Krzanich stressed that Intel is developing a broad range of products for the data center, including networking products, as well as FPGA chips that will be developed through the company's upcoming acquisition of FPGA manufacturer Altera.

Overall, Intel posted third-quarter earnings of 64 cents per share on sales of $14.47 billion for the third quarter. The earnings beat analyst expectations of 59 cents a share, driving sales of $14.22 billion, according to a consensus estimate from Thomson Reuters.

PUBLISHED OCT. 14, 2015