Intel believes worst of the PC market slump is over

Wednesday 16 July 2014 17.32
Intel is heavily reliant on traditional computer sales as it continues to struggle in the mobile and tablet market
Intel is heavily reliant on traditional computer sales as it continues to struggle in the mobile and tablet market

Intel believes the worst is over for a personal computer industry hammered by the mobile revolution.

The Santa Clara, California chipmaker forecast third-quarter revenue above Wall Street's expectations yesterday, sending its stock 4% higher in extended trade.

Investors have pushed shares of PC mainstays Microsoft and Intel to decade-highs, partly on bets that the global slump in PC demand that began with Apple’s launch of the iPad four years ago is hitting bottom.

"PCs have stabilised," Chief Financial Officer Stacy Smith said after Intel's report. 

He said he expects shrinking demand from consumers in China and other developing countries to rebound, just as it recently has in the United States.

From the end of 2010 - the year the iPad was launched - to the end of 2013, annual global PC shipments shrank a total of 12%, according to IDC.

Intel now expects the market's recovery to help it grow its full-year revenue about 5%, slightly higher than prior expectations.

Chief Executive Officer Brian Krzanich told analysts on a conference call that improved demand from companies replacing old PCs would last at least through the end of 2014.

Meanwhile, Intel also increased its share buyback programme by $20bn.

It plans to repurchase about $4bn of stock in the current quarter, underscoring its confidence in a turnaround and a growing crop of "two in one" devices with detachable keyboards and screens.

"My presumption would be that if they’re confident enough to boost it that they see this (PC market) upside maintaining," Bernstein analyst Stacy Rasgon said. "God help them if they’re wrong."

Intel said in a statement it expects third-quarter revenue of $14.4bn, plus or minus $500m. Analysts had expected $14bn on average, according to Thomson Reuters IBES.

Revenue from Intel's PC group rose 6% in the quarter while its data centre group, a big contributor to gross margins, had revenue jump 19%.

Intel has made little progress expanding from the PC industry into chips for smartphones and tablets. For the second quarter, Intel said its mobile and communications group's revenue fell 83% to $51m and had an operating loss of $1.12bn.

Intel's second-quarter revenue was $13.8bn, compared with $12.8bn in the year-ago quarter. 

In June, Intel revised increased its second-quarter revenue outlook to $13.7bn, plus or minus $300m, citing stronger-than-expected demand for PCs used by businesses. 

Intel posted second-quarter net income of $2.8bn, or 55 cents a share, compared with $2bn, or 39 cents a share, in the year-ago quarter.

Intel shares closed up 0.70% at $31.71 in regular trade on Nasdaq.