Intel alarmed investors on Tuesday when it lowered its Data Center forecast for the year to be in the “high single digits” growth range – down from its previous forecast of double digit growth.
The forecast, which was lowered in part because of weak enterprise sales within the Data Center group, raised red flags among investors, as Intel shares dipped 3.7 percent in after-hour trading. CEO Brian Krzanich assured investors on a third-quarter earnings that call he remains bullish on areas of growth within the Data Center Group, including cloud, networking and storage – as well as other segments, such as the Internet of Things (IoT) Group.
“[This quarter], cloud, telecom, networking and storage all grew at or above forecast… and are growing in percentage of the Data Center business, but weren’t enough to offset the three percent decline in the enterprise business,” he said. “We’re still quite happy, because what continues to drive growth is holding up, and when we go talk to our partners about what’s driving cloud growth, we start to look at devices like autonomous cars and the IoT network in general … all are driving growth in those segments.”
Krzanich also mentioned that Intel is looking for ways to address the weak enterprise segment – which includes large businesses running their own servers: “We’re working on tactics to shore that up over the next couple quarters,” he said.
Intel is traditionally a desktop company, and Client Compute sales still make up the bulk of its revenue. However, as the PC market continues to struggle, the company has been restructuring to pivot its focus to more lucrative markets, particularly the Data Center Group.
In the fourth quarter, the company said it expects $15.7 billion in sales, plus or minus $500 million – slightly below analyst expectations of $15.86 billion. This forecast is roughly flat compared to the third quarter and lower than the average seasonal increase for the fourth quarter, according to Intel.
Despite concerns for the future, Intel’s third quarter ended October 1 was strong – the company posted earnings of 69 cents a share on sales of $15.78 billion, about 9 percent higher than the same quarter a year ago. That figure edges above the outlook of analysts polled by Thompson Reuters, which estimated 73 cents per share on sales of $15.58 billion.
The Santa Clara, California company has made restructuring efforts over the past year to pivot its focus from the PC market to the lucrative data center and Internet of Things markets and these areas of growth were apparent in the company’s third quarter. Sales for the company’s Data Center group grew 10 percent year-over-year, while sales for its Internet of Things group increased 19 percent year-over-year.
In terms of the Internet of Things, Krzanich said on the call he “absolutely” believes Intel can sustain double-digit growth in the Internet of Things market.
“We’ve tested that with the deals we’re seeing on the plate going forward and looked at product roadmap … the segments of growth [for IoT] will continue to be the video analytics segment, the industrial segment with machine and factory automation, the retail segments, and then automotive,” he said.
Sales for Intel’s Client Compute group were also strong in the third quarter, increasing 5 percent year over year. As part of this segment, CFO Stacy Smith said on the call, “what has been strong in the past has driven increased growth for this quarter” – including notebooks and the gaming segment.