Intel earnings reveal weaker chip sales offset by a growing data center business

The company sold fewer high-end CPUs, but at good prices, which balanced a sharp drop in the sale of Atom chips for low-end tablets.

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Intel’s profits fell 6 percent as the company’s PC business continued to struggle. But Intel’s revenues mildly exceeded its own expectations as the datacenter business continued to report strong results.

The one obvious black mark on the company’s third-quarter earnings were sales of its Atom processors into tablets. Intel sold 8 million tablet chips, a 39 percent drop compared to a year ago.

Overall, Intel reported net income of $3.1 billion on revenue of $14.5 billion, which represented a 6 percent drop in profits against flat revenues a year ago. Analysts expected revenue of $14.2 billion and and 59 cents per share, which Intel exceeded.

The company’s two main divisions tell the story: Intel’s business is built upon the enterprise first and foremost. Intel’s Client Computing business reported operating income of $2.43 billion, down 20 percent, on revenue of $8.51 billion—a 7.5 percent drop in revenue. Profits at Intel’s Data Center Group, however, jumped 9.3 percent to $2.13 billion, while revenues also jumped 12.3 percent to $4.1 billion.

Intel, however, pulled off the neat trick of seeing the average selling price of its products jump by 15 percent in its PC business, while the actual number of chips fell a significant 19 percent from a year ago. That almost certainly means that Intel is capturing the high end of the PC market, ceding the low-margin value space to AMD. Specifically, notebook chip volumes dropped 14 percent, while desktop chip volumes fell by 15 percent. But prices rose 4 percent and 8 percent, respectively. 

Intel, however, is predicting a rather conservative fourth quarter, expecting revenue of $14.8 billion, plus or minus $500 million. That’s just a 2 percent increase from the just-reported third quarter, and relatively flat with the $14.7 billion Intel reported for the fourth quarter last year.

Correction: A previous version of this story misstated the revenue and profits at Intel's Client Computing business unit.

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