Intel Earnings Point to Ongoing Dip in PC Market

Intel earnings reported on Tuesday pointed to the PC market continuing to settle downward even as growth in data center processing and new markets like the Internet of Things (IoT) goes some way towards offsetting the ongoing shakeup of the traditional computing business.

The chip giant reported first-quarter revenue of $12.8 billion, sales which were flat compared with the same quarter in 2014, and net income of $2 billion, up 3 percent from the year prior. Earnings per share for the quarter were up 8 percent year-over-year to 41 cents and Intel's first-quarter gross margin was a robust 60.5 percent, an increase of nearly a point from the previous year.

The company's non-volatile memory business also saw a hefty hike in sales, Intel CEO Brian Krzanich said.

"Year-over-year revenues were flat, with double-digit revenue growth in the data center, IoT and memory businesses offsetting lower than expected demand for business desktop PCs," Krzanich said in a statement. "These results reinforce the importance of continuing to execute our growth strategy."

Market watchers will take note that Intel reported a steep decline in revenue for its Client Computing Group in the quarter, with sales of $7.4 billion which were down 16 percent sequentially and down 8 percent year-over-year.

Earlier this month, research firms Gartner and IDC reported that global PC shipments had declined by between 5 and nearly 7 percent in the first quarter of 2015 as compared with the same period a year ago.

But amidst uncertainty in the traditional client computing market it serves, Intel has been able to grow its business in other areas, most notably in the datacenter.

"The PC side of the their business took a hit, but Intel managed to rebound through expected growth in the datacenter, which had huge 19 percent growth, followed by IoT and memory, both relative surprises," said Patrick Moorhead, principal analyst for Moor Insights & Strategy.

Intel's Data Center Group, with first-quarter revenue of $3.7 billion, was the biggest factor in making up for the dip in client sales, but the relatively new Internet of Things Group also saw an 11 percent bump in quarterly sales versus 2014, with revenue of $533 million.

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The chip giant was conservative in its forecast for the rest of 2015, projecting that revenue for the year will be "approximately flat" compared to 2014. Intel also alerted investors to expect a restructuring charge of about $120 million in its second quarter.

Moorhead said he remained optimistic about the prospects for a turnaround in the PC market.

"I'm bullish on PCs in the second half of this year as I think consumers have waited way too long to upgrade that aging, 5- to 6-year-old PC," he said. "As tablets are an established category, there won't be as much competition with PCs for disposable income around the holidays, so I think many consumers will choose to spend $499-599 on a new PC. This bodes well for Intel."