Intel stated that its profit margin had fallen over the third quarter of the year, as consumer sales decreased due to consumers buying cheaper laptops and cuts to data center spending by businesses and governments.
Chip sales are booming, but customers want lower-priced chips rather than Intel’s high-priced high-performance offerings, wearing down overall gross margins, reported Reuters.
The pandemic has given Intel a boost in the form or surging laptop sales as employees and students work from home. Sales in its PC group were US$9.8 billion, beating analyst estimates of US$9.09 billion, according to FactSet.
Despite these figures, Intel sold a higher volume of less-profitable chips in its PC business, steering operating margins down to 36% in the third quarter from 44% a year before.
Chips, and heavily beaten-down businesses and Governments bottleneck expenses on data centers, dragged down Intel’s shares to by 10% on Thursday 23 October, 2020.
Further pressures are faced, as the dominant manufacturer and distributor of processor chips for personal computers and data centers had reiterated that it had been struggling with manufacturing delays, while its next-gen chipmaking technology could be delayed by six months.
Due to a growing uncertainty in global economic recovery, Intel’s Chief Financial Officer, George Davis, said in a post-earnings call with reporters: “You’re seeing the demand shift from desktops and higher-end enterprise PCs to the entry-level consumer and education PCs. Even though the volume is good, your [average selling prices] are coming down, so that impacts your gross margins a little bit.”
According to Intel’s quarterly earnings’ report, the chipmaking tycoon had posted a net income of US$1.11 per share, while the company was anticipating its current-quarter revenue to hover around US$17.40 billion, beating an analysts’ estimate of $17.36 billion.
Mr. Davis mentioned that a similar dynamic hit the data center business, where spending by government and business customers plunged 47% and operating margins dropped from 49% to 32% after two quarters of growth. Revenue from Intel’s data-center business fell by 7% to US$5.9 billion in the reported quarter versus a forecast of US$6.21 billion, said FactSet.
While cloud computing customers and operators of 5G networks helped make up for some of the shortfall, those chips are lower priced, Davis said.
KinNgai Chan, an analyst with Summit Insights Group, reflects that ‘the main issue for Intel moving into 2021 remains gross margin pressure and further deterioration of its leadership position due to its process node roadmap delays’.
Intel is facing increased competition from NVIDIA and (reportedly) AMD in the data center chip market after making significant acquisitions of chip manufacturers.
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