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Why Intel’s Fourth-Quarter Revenue Fell Short of Expectations

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Intel’s revenue

Intel’s (INTC) fourth-quarter revenue rose 9.4% YoY (year-over-year) but fell 3% sequentially to $18.7 billion, missing analysts’ estimate and its own guidance of $10 billion. This revenue miss came as its PC and data center revenue fell short of expectations due to a CPU (central processing unit) supply shortage and slowing economic demand.

Intel earned 52.4% of its revenue from its CCG (Client Computing Group), which includes sales from its PC CPU platforms and adjacency products such as mobile modems.

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Client Computing Group

Intel’s CCG revenue rose 9% YoY to $9.8 billion in the fourth quarter as the PC market stabilized and its share in the modem market rose. The segment’s sales rose 5.8% YoY driven by strong demand from the commercial and gaming segments. Its notebook sales rose 8%, and its desktop sales rose 3% YoY.

According to Gartner’s preliminary data, global PC shipments fell 4.3% YoY in the fourth quarter of 2018 after two quarters of growth. Gartner analyst Mikako Kitagawa stated that PC shipments fell as a supply shortage at Intel pushed business PC upgrades to 2019, while PC demand was low among consumers and small businesses amid a weak economic environment. Declining shipments saw Intel’s notebook volumes rise only 1% and its desktop volumes fall 8% YoY in the fourth quarter.

The decline in PC shipments was more than offset by higher ASPs (average selling price) for commercial PCs. Intel’s notebook and desktop ASPs rose 6% and 13%, respectively, YoY. According to Intel, the supply shortage has continued, especially in lower-margin products. The company is increasing its supply and expects the shortage to end by mid-2019.

Intel’s supply shortage benefited rival Advanced Micro Devices (AMD), which reported an 8.6% YoY rise in its Computing and Graphics revenue in the fourth quarter driven by strong sales of its Ryzen PC processors.

Intel’s adjacency product revenue

Intel’s CCG revenue also benefited from a 45% YoY growth in adjacency product revenue to $1.3 billion in the fourth quarter as it secured complete modem orders for Apple’s (AAPL) iPhones. However, its modem sales were lower than anticipated in the quarter, as Apple’s iPhone sales fell 5% YoY in its December 2018 quarter.

Next, let’s see how the first quarter of 2019 could play out for Intel’s CCG.

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