Intel Server Sales Jump 78%, Q4 Outlook Dims: Rapid Earnings Reaction
Key Points
Data center revenue jumped 78%, and operating income from that business roughly tripled.
Intel’s Q4 forecast calls for lower revenue, gross margin, and earnings than this quarter.
The diluted share count rose about 17% after a $23 billion stock sale, which weighed on per-share results.
Intel (NASDAQ: INTC) posted its strongest data center revenue growth in 15 years, then forecast lower revenue, gross margin, and earnings for the fourth quarter. Shares fell about 18% in early after-hours trading. Demand for its server chips is now outrunning what Intel can make, but the forecast shows that strength can't offset a PC slowdown management expects to last through the first half of next year.
Key numbers
Revenue: $16.5 billion, up 21% from a year ago.
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Data center and AI revenue: $7.3 billion, up 78%.
GAAP gross margin: 43%, up from 38.2%.
Fourth-quarter revenue guidance: $15.0 billion to $16.0 billion, below the third quarter's result.
What it means
Chipmaking carries heavy fixed costs, so extra volume through Intel's factories falls quickly to profit. Data center operating income roughly tripled to about $3.0 billion, even as PC sales slipped. Management's top priority is adding Xeon supply, so demand isn't the limit.
The forecast runs that math in reverse. Intel guides GAAP gross margin down to 37.1% from this quarter's 43%, and the release doesn't explain why. Lower sales spread across the same fixed costs would explain much of it.
GAAP earnings per share fell to $0.60 from $0.90 even as operating income rose sharply. Last year's quarter included a $5.45 billion gain from selling most of its stake in Altera. The diluted share count also jumped after heavy stock sales, including a $23 billion public offering this quarter, so profit is split across far more shares.
Image source: Getty Images.
What to watch next
Watch whether fourth-quarter gross margin holds near the 37.1% forecast and whether added Xeon supply keeps data center sales growing as PC sales slide.
Savannah Maxwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel. The Motley Fool has a disclosure policy.