Intel Ends Worst PC Year Ever With Revenue Beat

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In the final quarter of 2013, profits at the Santa Clara, California-based chipmaker Intel (NASDAQ:INTC) rose. The company’s stronger results and industry data both suggest the struggling personal computer market has begun to stabilize.

Early evidence that the declines in PC sales had reached bottom gave Intel investors faith in the company’s future financial health, and they responded by bidding shares up 13 percent; the stock advanced more than 28 percent throughout 2013. But the fact that the chipmaker gave disappointing revenue guidance for 2014 concerned investors, causing shares to drop as much as 3 percent following the release of earnings on Thursday after the markets closed.

Even company CEO Brian Krzanich noted in the earnings press release that Intel “had a solid fourth quarter.” A solid quarter for Intel meant that the PC market was showing “signs of stabilization” and that the company had experienced “financial growth from a year ago,” according to Krzanich. For the fourth quarter, Intel’s financial growth amounted to a 6.4 percent increase in net income.

Net income totaled $2.63 billion, or 51 cents per share, missing Wall Street’s bottom-line forecast, while revenue rose to $13.83 billion from $13.48 billion. Analysts had expected Intel to earn 52 cents per share on revenue of $13.7 billion.

The company’s all-important gross margin came in a 62 percent for the three-month period, slightly better than the 61 percent Intel projected. For the full year, Intel posted revenue of $52.7 billion and net income of $9.6 billion.

As a company that generates more than 80 percent of its revenue from the personal computer market, Intel’s earnings reflected the struggles of a business rushing to adapt to a changing tech market. For years, Intel had a near-monopoly on the manufacture of PC processors, but as consumers began spending an increasing number of dollars on smartphones and tablets rather than personal computers, Intel’s business began to suffer.

Research firms Gartner and IDC have estimated that global PC sales decreased 10 percent in 2013, the worst year on record for the industry. But the decline was less severe in the fourth quarter than in the third, with sales falling 5.6 percent in the last three months of the year compared to the 7.6 percent drop recorded in the previous three months.

Analysts at JPMorgan Chase boosted their rating of Intel’s stock largely due to the stabilizing PC market, noting that under Krzanich, who replaced Paul Otellini as chief executive in May, the company “has taken a realistic outlook on the PC market and its growth expectations for the first time in years.” Similarly, analysts at BMO Capital Markets described Intel as a “company more willing to accept and address the challenges that [it] faces.”

With PC sales remaining sluggish at best, Intel has redirected its focus as a means to address those challenges. The company started promoting its chips for use in smartphones and tablets, which was previously the realm of rival companies using a chip design from the British firm ARM (NASDAQ:ARMH).

Krzanich has made it a goal to penetrate new markets like tablets and the movement known as the Internet of Things. “We’ve built a strong foundation for our business by bringing innovation to the market more quickly across a wide range of computing platforms,” he said in Intel’s earnings release. “For example, at CES, we demonstrated multiple devices that weren’t on our roadmap six months ago.” But financial results from those new categories are negligible as of yet.

That being said, for analysts looking to understand the company’s financial position more clearly, Intel’s chip sales and demand for its data centers are among the most important numbers.

In recent quarters, Intel’s most lucrative business has been the sale of chips for server systems, but that market is also contracting, as an increasing number of technology companies offer business clients cloud computing services. Still, the chipmaker reported that revenue from its data center group rose 8 percent in the fourth quarter.

The fourth quarter “was a solid finish to a year of transitions,” Krzanich said in an earnings conference call with analysts, per the San Jose Mercury News. But even though he called 2013 a year of transition, Intel predicted its sales that year would be “approximately flat.”

More to the point was a prediction made by Edward Jones analyst William Kreher. He told the San Jose Mercury News that even though the company reported strong cash flow and a few other positives, the firm believes “Intel’s market position remains at risk,” with a key problem being the relatively few tablets in the chipmaker’s product lineup.

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