Intel Corp. (INTC) offered a ray of sunshine for an otherwise cloudy industry yesterday, indicating an uptick in PC sales in the face of strong competition from tablets.
The company said it shipped a record number of microprocessors during the second quarter and reported a 40% increase in profit that was in line with previous upward guidance. In addition, the company predicts continued revenue growth for the third quarter and improving gross margins.
The company also outlined a revised share buyback plan, whereby it plans to add $20 billion to its stock buyback plan and said it expects to repurchase about $4 billion in shares in the current quarter.
After several quarters of declining demand for its chips as consumers shifted from laptop computers to tablets and smartphones–markets Intel has struggled to crack–the company indicated last month that the winds were shifting as it saw an increase in business PC purchases. Undoubtedly, some the uptick in enterprise demand is being driven by Microsoft’s (MSFT) ending support of its Windows XP operating system. This has led companies to upgrade their older machines.
Whether this trend will continue is the $64,000 question. Brian Krzanich, Intel’s chief executive, said buying should continue among business buyers, though the consumer PC market remains tough.
“The installed base of PCs that are at least four years old is now roughly 600 million units, and we are seeing clear signs of a refresh in the enterprise and small and medium businesses,” Mr. Krzanich said in a conference call.
According to the WSJ.com, Intel’s outlook and other positive data about PC sales coincides with an apparent softening in demand for tablets. The article cites Bob O’Donnell, an analyst at TECHnalysis Research, who said many businesses had taken time to upgrade their PCs while studying whether to issue tablets to employees instead. He believes most companies have now decided to stick with laptops and desktop machines, while many consumers are picking large smartphones over small tablets.
While PC results have been encouraging of late, Intel still realizes mobile is more than likely the future of computing. However, compared to other chip makers, it was late to the party and has been playing catch-up ever since. To try and narrow the gap, Intel has invested billions in chips to power mobile devices. However, its latest results show mixed success. Intel reported an operating loss for its mobile and communications chip segment of $1.12 billion in the second quarter, up from $761 million, as revenue dropped 83% to $51 million.
But Mr. Krzanich said Intel is on track to meet his goal of placing chips in 40 million tablets this year, selling 10 million for those devices in the second quarter. He also said Intel’s Internet of Things group—one of his newest priorities, based on providing chips for an array of non-computer devices—posted a 24% jump in revenue.
Overall, Intel reported net income for the second quarter of $2.8 billion, of $0.55 per share, up from $2 billion, or $0.39 per share, a year ago. Revenue increased 8% to $13.83 billion. Analysts polled by I/B/E/S had been projecting earnings of $0.523 a share.
The company’s gross margin widened to 64.5%, compared with 59.6% in the first quarter and its forecast in mid-June of 64%.
Intel guided for third quarter revenue of $14.4 billion, about 7% higher than the year-earlier period. The company also forecast gross margin of 66%, plus or minus a couple points.
For the full year, Intel said it expects revenue to climb about 5%—slightly higher than prior expectations—and put its gross margin at 63%.