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Oct 25, 2018

Intel bullish on outlook after surprising jump in PC demand

Intel logo is seen behind LED lights in this illustration taken January 5, 2018.

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Intel Corp. (INTC.O), the world’s second-biggest semiconductor maker, gave bullish forecasts that demonstrate growth is back in a personal-computer market many thought was dying.

Revenue in the fourth quarter will be about US$19 billion and profit will be US$1.16 per share, Intel said in a statement Thursday. Both projections beat analysts’ average estimate. Intel also lifted its revenue prediction for 2018 to US$71.2 billion, US$6 billion more than it was forecasting at the beginning of the year.

The company, whose processors are at the heart of most of the world’s laptops, desktops and servers, has been raking in cash this year as companies have spent on upgrading their hardware. Intel reported revenue from its PC-centric business, its largest unit, rose 16 per cent in the third quarter to US$10.2 billion.

“After seven years of decline -- and some belief that it was in perpetual decline -- what we’ve seen this year is some stabilization,” interim Chief Executive Officer Bob Swan said in an interview.

The shares, which had closed at US$44.31 in regular New York trading Thursday, rose as much as 6.5 per cent in extended trading following the report, then pared the gains to less than 1 per cent after Swan cited the possibility of a growing trade dispute between China and the U.S. as a headwind for next year. He also reminded analysts on a conference call that the Asian country is a "big market" for Intel and an important part of the global supply chain.

Swan’s caution followed an already tough week for the chip industry. Intel’s main rival, Advanced Micro Devices Inc., gave weaker-than-expected forecasts when it reported earnings on Wednesday, sending its shares tumbling. That added to industrywide losses sparked earlier in the week when Texas Instruments Inc., which has the largest number of customers in the semiconductor industry, warned that demand is slowing across most of its markets.

After two years of more than 30 per cent gains, the Philadelphia Stock Exchange Semiconductor Index is now in negative territory for 2018. Semiconductor shares rebounded earlier Thursday, only their fourth gain in nearly three weeks.

For the third quarter, Intel said net income was US$6.4 billion, or US$1.38 a share, from US$4.5 billion, or 94 cents U.S., a year earlier. Analysts were looking for earnings of US$1.11 a share. Sales rose 19 per cent to US$19.2 billion, compared with projections of US$18.12 billion.

Growth in Intel’s server chip unit also kept up a torrid pace as cloud-service providers bought its expensive Xeon chips. That business had a sales gain of 26 per cent from a year earlier, to US$6.1 billion.

Intel’s stock had trailed the performance of other chipmakers and the overall market this year after the company confirmed that it won’t mass-produce chips made with 10-nanometer technology until next year, a revised schedule that may put it behind rivals such as Taiwan Semiconductor Manufacturing Co.

Improvements to semiconductor designs being made using existing manufacturing lines will keep Intel’s offerings competitive in the meantime, executives said. Swan said Thursday that the company is making steady progress toward its revised targets.

For next year, the Santa Clara, California-based company will spend a similar amount to this year’s US$15.5 billion on new plants and equipment. It still may struggle to meet demand if it receives any further orders in the current quarter -- but it doesn’t expect that scenario, Swan said.

The results are Intel’s second report since the departure of CEO Brian Krzanich, who was removed in June after the chipmaker learned he’d had an extramarital relationship with a subordinate. Swan, who is also the company’s finance chief, is filling the role on an interim basis.

The company touted its progress at lessening its dependence on PC processors. One effort, in memory chips, posted a gain of 21 per cent in sales to US$1.1 billion in the quarter. The cost of a breakup of its joint venture with Micron Technology Inc. and declining prices for flash-memory chips used in computer storage mean that the unit will about break even this year, Swan said, backing off from an earlier prediction of profitability this year.