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Intel’s Revenue Guidance Suffers Setback due to Demand Weakness

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Intel’s second-quarter revenue guidance

In the first quarter, Intel (INTC) saw demand pressure in the data center market as its customers, especially in China (FXI), shifted to absorbing the excess capacity they purchased in the first nine months of 2018. The company also lost some PC processor unit market share to Advanced Micro Devices (AMD) due to a CPU supply shortage because of which Intel couldn’t cater to mid- and low- range demand. The company was also hit by falling NAND prices.

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All the above factors should continue in the second quarter until demand recovers in the second half. The CPU supply shortage should continue to the third quarter. So Intel expects its second-quarter revenue to fall 8% year-over-year to a two-year low of $15.6 billion, driven by a high-single-digit decline in data-centric businesses.

Full-year 2019 guidance

On the first-quarter earnings call, Intel CEO Bob Swan stated that his talks with customers concluded that China’s headwinds have made customers cautious about IT spending. As a result, demand should remain tight in the second quarter. However, he added that the same customers expressed confidence that demand would improve in the second half.

Although Intel expects demand to improve in the second half, it should be difficult for the company to beat its strong performance in the second half of 2018. Intel may not report year-over-year growth in the four quarters of 2019 but may report sequential growth in the last two quarters.

For full-year 2019, Intel expects revenue to fall 3% year-over-year to $69 billion, $2.5 billion lower than its previous guidance of $71.5 billion. It expects data-centric revenue to fall low single digits, with data center revenue expected to fall by mid-single digits. The year-over-year decline in full-year revenue indicates that the demand uptick in the second half won’t be able to offset the weakness in the first half.

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