Intel's slowdown in PC business offset by growth in data centers

Intel kicked off the latest tech earnings season Tuesday, reporting first-quarter results mostly in line with lowered expectations, following the chipmaker's updated estimates last month.

The company reported a net income of approximately $2 billion, or 42 cents per share, a 3 percent rise compared to the same period last year. Non-GAAP earnings were 41 cents per share on a revenue of $12.8 billion, flat year over year. Wall Street was looking for earnings of 41 cents per share with revenue of at least $12.9 billion.

Headlining the report, Intel attributed the results to the slowdown of the PC business, which was offset by "growth in data center, Internet of Things (IoT) and non-volatile memory businesses."

Intel CFO Stacy Smith stressed these results were in line with the updated estimates Intel provided in March, but he admitted they are below the projections originally offered last quarter.

Intel is only one of many publicly traded companies shifting (and often lowering) outlooks throughout the quarter in reflection of dramatic currency fluctuations, notably a stronger US dollar. Still, Intel shares performed better in after-hours trading, inching upward by 3 percent initially after the report was released.

Just last week, Intel announced it would be altering its reporting structure, merging the PC Client Group with results for the mobile and communications unit to create the overall Client Computing Group. The Santa Clara, Calif., company said this was done "to address all aspects of the client computing market segment and utilize Intel's intellectual property to offer compelling customer solutions."

Thus, with $7.4 billion in revenue during the first quarter, the Client Computing department started off with revenue slipping by 16 percent sequentially and 8 percent annually.

Data centers did better on an annual basis, producing $3.7 billion in revenue, up 19 percent year over year. The Internet of Things department also grew revenue by 11 percent year over year to $533 million in the first quarter. The Internet of Things refers to the idea of connecting more devices and objects to the Web.

"These results reinforce the importance of continuing to execute our growth strategy," Intel CEO Brian Krzanich said in Tuesday's report.

Software and services, however, slipped with $534 million in revenue, down 3 percent year over year.

Intel was expected on Tuesday to shed light on the company's goal to ramp up profitability for its mobile strategy by $800 million in 2015. However, neither the first-quarter report nor the CFO commentary included a breakout about mobile expectations.

For the current quarter, Wall Street expects Intel to deliver earnings of 48 cents per share and $13.51 billion in revenue. Intel responded with a much softer outlook of roughly $13.2 billion in revenue, plus or minus $500 million. The tech giant also lowered its annual revenue outlook, expecting things to remain flat from 2014 to the end of 2015.

Updated: During the afternoon conference call, Smith assured analysts that Intel is on track to achieving its "annual goal of improving mobile profitability by $800 million with the majority of improvements to be realized in the back half of the year."

A big part of this will be relying on offsetting trends in the same way Intel's data center and IoT groups helped make up revenue as PCs declined this quarter.

Smith explained that the newly formed Client Computing Group, which again now includes mobile, was "driven by a 16 percent decline in desktop unit volume partially offset by a 3 percent increase in notebook volume."

As for other strategic investments and potential M&A moves, including recent reports that Intel was in talks to buy semiconductor maker Altera, Smith said he "wouldn't comment on rumors in the press."

This story originally posted as "Intel's first quarter report doesn't live up to Wall Street expectations" on ZDNet.