Inside Intel’s Lacklustre Q1 Revenue Forecast

Intel posted lower-than-expected revenue

Chip maker Intel (INTC) reported lower-than-expected fourth-quarter revenue after the trading bell on January 24 due to a slowdown in China (MCHI) (FXI), softer cloud spending, and lower memory prices. The fall in its sales in China was the result of trade war tensions, which led some cloud computing vendors to buy chips a little earlier than last year.

Amid this weakness, the company expects to see soft earnings and revenue in the upcoming quarter. Intel anticipates adjusted EPS of $0.87 in the first quarter of 2019 compared to analysts’ estimate of $0.95. The company also expects first-quarter revenue of $16 billion compared to analysts’ estimate of $16.6 billion. In 2019, Intel expects adjusted EPS of $4.60 on revenue of ~$71.5 billion. According to analysts’ numbers, its adjusted EPS are expected to be $4.53 on revenue of $72.1 billion.

Inside Intel’s Lacklustre Q1 Revenue Forecast

Factors denting revenue

Intel’s CCG (Client Computing Group) segment, which includes PC chips, reported revenue of $9.82 billion in the fourth quarter. Though its revenue rose 10% YoY, it was below the consensus estimate of $10.01 billion. The world’s largest chip maker is struggling with a supply shortage of PC CPUs, and it expects the demand-supply issue to resolve in the second half of 2019.

A fall in modem demand also dented the CCG segment’s sales. This lower modem demand was the result of Intel’s primary client, Apple, issuing a sales warning. On January 3, Apple announced a cut in its revenue guidance for the first quarter of fiscal 2019, which ended in December, due to waning iPhone demand in China.

Intel’s Data Center Group segment, which includes chips for cloud providers, posted revenue of $6.07 billion in the fourth quarter. Its revenue rose 9% YoY in the quarter, but it was below analysts’ expectation of $6.35 billion and also lower than its third-quarter revenue rise of 26%. Weaker Chinese demand and a slowdown in sales to cloud service providers weighed on the segment’s revenue.

Rival Advanced Micro Devices (AMD) is also set to intensify the competition in the CPU market in late 2019 with the launch of its second-generation EPYC server CPUs.

Intel’s Memory segment’s revenue rose 25% to $1.11 billion in the fourth quarter but lagged analysts’ estimate of $1.12 billion. However, negative-AND prices have lowered in recent months, which might be a headwind in the first quarter.