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Inside Intel’s 1Q17 Irony

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Dec. 4 2020, Updated 10:43 a.m. ET

Shifting focus to promising markets

For a company to say that a business it has put on the back burner actually helped it in the latest quarter makes for an interesting irony. Selling personal computer chips was once a lucrative business for Intel (INTC).

However, the business has been steadily declining in recent years amid the rise of smartphones, tablets, and other mobile computing devices. This trend explains why Intel has shifted its focus to the server and Internet of Things (or IoT) markets, where it sees huge growth opportunities. However, the PC business that Intel has been trying to avoid was its saving grace in 1Q17, as it saw its vital Server and Data Center segments slip.

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Server unit profits shrink 16%

Intel’s (INTC) division that includes its PC chips business generated revenues of $8.0 billion, implying 6% growth from the same quarter in 2016. This growth also surprised Wall Street, where the average estimate called for revenues of ~$8.0 billion.

Gains in the Client Computing division helped offset pressure in Intel’s Data Center unit. The company reported that its Data Center revenue growth slowed to 6% from 8% in the previous quarter and 9% in the same quarter in 2016. As a result, Intel’s Data Center operating profits shrank 16% year-over-year.

Intel blamed the costly manufacturing process upgrade it is undertaking in its Data Center division for the lackluster performance in the most recent quarter. This trend implies that its Server segment margins should begin to improve after the company completes its manufacturing process shift.

Eyes on the cloud data center market

In its Server unit, Intel is eyeing spending by Amazon (AMZN), Microsoft (MSFT), Oracle (ORCL), and Alphabet’s (GOOGL) Google in their cloud data center buildout efforts.

Overall, Intel (INTC) reported 1Q17 revenues of $14.8 billion, up 8% from 1Q16 and slightly below the consensus estimate. Its adjusted EPS (earnings per share) of $0.66 also topped the consensus estimate.

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