Intel's Q1 earnings exceed estimates, says on track for tablet chip sales

Intel Corp's first-quarter net profit exceeded Wall Street's estimates as the chipmaker wrestles with slow demand for personal computers and its chief executive officer said an ambitious goal to stake out market share in tablets was on track.

With personal computer shipments falling for eight straight quarters through March, some analysts believe the industry's decline is close to hitting bottom, potentially giving Intel breathing room as it struggles to develop better processors for mobile and wearable devices.

Following its first-quarter report on Tuesday, Intel Chief Financial Officer Stacy Smith said the chipmaker continues to expects PC shipments to decline slightly in 2014.

"But there are pretty clear signs of stabilization," Smith told Reuters. "You have an ageing install base of PCs and we're bringing exciting products to the market place and that's leading to the pockets of strength we're seeing in the PC market."

In its report, Intel said revenue from its PC client group in the first quarter was $7.9 billion, down 1 percent from the year before.

The company also expects a full-year gross margin of 61 percent, plus or minus a few percentage points. That is 1 percentage point higher than Intel's previous forecast.

Intel shares rose 1.6 percent in extended trading after closing up 0.80 percent at $26.77 on Nasdaq.

"The margin guidance is what's pushing the stock up. The PC client group was roughly in line with seasonal," said Bernstein analyst Stacy Rasgon.

Tuesday's results included a new financial reporting structure to better reflect its focus on two small key areas: mobile and the growing field of linking up electronic devices, known as Internet of Things.

Tablet push
Intel in recent years has been slow to adapt its chips for smartphones and tablets and is rushing to catch up with mobile leader Qualcomm.

Intel said its mobile and communications group had revenue of $156 million in the first quarter, down 61 percent from the year-ago quarter.

Chief Executive Officer Brian Krzanich told analysts on a conference call that Intel shipped 5 million tablet chips in the first quarter and is on track to reach a goal of shipping 40 million tablet chips in 2014.

Last year, Intel shipped 10 million tablet chips and to reach its target for 2014, the company is offering to heavily subsidize manufacturers' costs to include its components in their future tablets.

Asked whether Intel expected that some of those mobile chips might be used in low-end laptops instead of tablets, CFO Smith said: "We mean 40 million tablets with Intel chips in them by the end of this year, with the majority of those being Android-based tablets."

After underestimating the impact of smartphones and tablets, Intel is keen to make sure it is part of an emerging trend toward wearable computing devices such as smart watches. In March, it bought Basis Science, the maker of a wearable health tracker, as part of that push.

But industry watchers believe smart clothing is not ready to make a major splash with consumers any time soon. Analysts are skeptical that chips for wearables will be able to make up for much of the business that Intel has lost because of the shrinking PC industry.

Intel's data center group, a big contributor to the company's overall profits, had revenue of $3.1 billion in the first quarter, up 11 percent year over year.

The chipmaker reported first-quarter net earnings of $1.947 billion, or 38 cents a share, compared with $2.045 billion, or 40 cents a share, in the year-ago quarter. Analysts on average expected 37 cents a share, according to Thomson Reuters.

First-quarter revenue was $12.76 billion, compared with $12.58 billion in the year-ago quarter, Intel said in a statement on Tuesday. Analysts had expected $12.814 billion. Intel forecast revenue of $13 billion, plus or minus $500 million, for the second quarter, which ends in June. Analysts had expected $12.957 billion on average.

© Thomson Reuters 2014