INTC Intel Corporation

By Don Clark 

Intel Corp. reported an 8.7% rise in its third-quarter earnings, as a lengthy slide in the personal computer market reversed and cloud-computing companies stocked up on servers.

The results came in ahead of Wall Street estimates and the increased revenue guidance that Intel issued last month. But the company's estimate for revenue in the current period was slightly lower than analysts projected.

Its shares slid nearly 6% to $35.54 in after-hours trading.

Intel executives stressed the positive, noting the company set sales records in its data center, Internet of Things groups, and in total revenue.

"It was an extraordinary quarter," said Stacy Smith, the company's longtime chief financial officer, who is taking a new position as executive vice president leading manufacturing, operations and sales.

Intel, whose chips provide processing power for the vast majority of computers, in July reported a 51% profit drop on charges resulting from a plan to reduce its workforce by 12,000 people by mid-2017. The company linked those cuts to a strategy to reduce its dependence on selling chips for PCs, emphasizing servers and noncomputer devices associated with a trend called the Internet of Things.

For the moment, though, PC chips remain the company's largest source of revenue. Intel in September boosted its revenue forecast for its third quarter due to moves by PC makers to rebuild their inventories and some signs of stronger customer demand. Gartner Inc. and International Data Corp. last week reported the latest in a series of shipment declines for the PC business, though IDC said the decline was less severe than expected.

Intel reported Tuesday that revenue for its client computing group -- composed largely of PC chips -- increased 4.5% from the year-earlier period to $8.89 billion. Besides shipment volumes, revenue in the unit can fluctuate according to whether customers selected higher-priced chips or not. Intel said average selling prices for chips used in notebooks rose 3% on a 4% increase in shipments.

In the next quarter, after moves by computer makers to build more systems in advance of the holiday selling season, Intel expects PC chip sales in the fourth quarter to be lower than the normal seasonal increase, Mr. Smith said.

Bill Kreher, an analyst at brokerage house Edward Jones, said retailers showed a willingness to put new PCs on their shelves. But Intel's projection suggests "the sustainability of that PC strength remains in question," he said.

In the company's data center group, whose products are priced higher and command wider profit margins than PC chips, Intel said third-quarter revenue rose 10% to $4.54 billion. Analysts had been expecting revenue of about $4.6 billion, according to FactSet, based partly on expectations of higher spending by cloud computing services.

Brian Krzanich, Intel's chief executive, told analysts third-quarter revenue from cloud service providers rose 32% from the year-earlier period.

Intel said revenue in its Internet of Things group rose nearly 19% to $689 million. In memory chips, where Intel and other suppliers have been hurt by price declines, revenue fell about 1% to $649 million.

In all, Intel reported earnings of $3.4 billion, or 69 cents a share, compared with profit in the year-earlier period of $3.1 billion, or 64 cents a share. Excluding one-time items, Intel said it earned 80 cents a share.

Revenue rose to $15.78 billion from $14.47 billion.

Analysts on that basis had predicted earnings per share of 72 cents on revenue of $15.6 billion, in line with the figure Intel projected last month.

The company said its adjusted gross profit margin was nearly 65%, ahead of its September projection of 63%.

For the current quarter, Intel projected revenue of $15.7 billion, plus or minus $500 million. Analysts, on average, had projected revenue of $15.9 billion. The company predicted its adjusted gross margin would decline to 63%.

Write to Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

October 19, 2016 02:48 ET (06:48 GMT)

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