Intel, the world's biggest chipmaker, reported a drop in data centre revenue and a steep decline in gross profit margin, a sign it is losing market share to rivals and customers who are designing their own components.
Its personal computer business performed better on continued demand for laptops that run Intel processors. But the company’s data centre group generated first-quarter sales that fell 20 per cent from a year earlier and missed Wall Street estimates. The unit is Intel’s most profitable businesses, so the lower revenue dented overall margins.
New chief executive Pat Gelsinger inherited a company that’s struggling with production technology that was once the foundation of its industry dominance. Delays have allowed other chip companies to catch up and tempted customers to design their own components.
Intel argued the server business is going through a temporary slump caused by too much inventory. The first quarter was the bottom and growth has returned, executives said.
That didn’t diffuse questions from analysts on a conference call focused on whether Intel is losing market share and when profitability will start to expand.
Mr Gelsinger said Intel is now in “investment mode” during a critical period for its return to leadership and promised he will deliver products that are again the best in the industry.
“The days of Intel having a stranglehold on this business have gone,” said Logan Purk, an analyst at Edward D Jones. “The competitive landscape has shifted and it’s shifted quickly. That is going to weigh on this business.”
Intel said its gross margin, the percentage of revenue remaining after deducting the cost of production, was 55.2 per cent, down more than five percentage points from the same period last year. This is a key indicator of the strength of its manufacturing and product pricing. Intel has historically delivered margins above 60 per cent.
Investors had been optimistic about Mr Gelsinger’s recovery plan, pushing the stock up 26 per cent this year through Thursday, after it declined 17 per cent in 2020 and lagged far behind its rivals.
The company raised its full-year sales forecast slightly to $72.5 billion. While that’s down from last year’s record $77.87bn, the company still gets multiple billions of dollars more in sales than faster-growing Taiwan Semiconductor Manufacturing Company and Samsung Electronics.
Intel said sales of chips to cloud service providers fell 29 per cent from the same period a year earlier.
Mr Gelsinger’s revival plan is getting a boost from the PC market, though. The Covid-19 pandemic forced millions of people to work and study from home, driving a surge in purchases of laptops and other computer gear.
Intel’s PC chip division had first-quarter revenue of $10.6bn, up 8 per cent from a year earlier. Analysts projected $10bn.
