Intel's first quarter sales and second quarter forecast fell short of Wall Street's expectations, while company executives reiterated plans to launch its first 10-nm products late this year.

Intel also cut its sales target for 2019 after customers in China and elsewhere reduced orders. Intel said it now expects sales of approximately $69 billion for the year, down from a forecast of $71.5 billion it gave in January. Revenue of $69 billion would represent a 3% decrease from 2018.

"We see customers becoming more cautious in their buying patterns, with the most acute deceleration happening in China," said George Davis, Intel's newly appointed chief financial officer, in a conference call with analysts following the first quarter report.

Davis said the demand pressure is particularly evident in Intel's data center business, where executives are seeing a continuing inventory correction in enterprise and comms customers. Cloud service providers, who increased buying significantly last year, have slowed down to digest the capacity they have added, Davis said.

Robert Swan, Intel's CEO, said conversations with customers and partners have made it clear that the decline in memory pricing has intensified. He said these conversations have also made it clear that the inventory and capacity digestion by data centers is more pronounced than Intel initially expected, and that economic headwinds in China have increased.

Swan also reassured analysts on the call that Intel has increased its manufacturing velocity on 10-nm by nearly twofold in the past four months and remains on track to deliver 10-nm parts by the end of the year.

The plan has been since last year to roll out the company's first 10-nm products during the 2019 holiday season. That schedule was seemingly called into question earlier this week when Tweakers, a Dutch-language IT news website, published what were purported to be confidential Intel roadmaps that showed Intel's first 10-nm laptop CPUs becoming available on a limited basis beginning in the second quarter. The authenticity of these roadmaps — which also showed that Intel would not have any desktop CPUs available until 2022 — has not been verified. Intel declined to comment.

But Intel reiterated the 2019 holiday goal Thursday, adding that it hopes to begin qualifying its first Ice Lake-U notebook processors this quarter. The company also said it expects to ship more 10-nm products this year then it previously planned.

"Given the progress we've made on 10 nm, we're going to be shipping more units in the fourth quarter than we previously anticipated," Swan said.

Breaking Down the Numbers

The forecast cut sent Intel's share price reeling, declining by more than 8% in after-hours trading following the financial report Thursday.

David Wong, managing director for equity research at Nomura Instinet, said in a report circulated Thursday that the semiconductor industry downturn is clearly starting to affect Intel as well as other chip companies. But Wong said Nomura remains positive on Intel's stock given the company's profitability and leadership in some of the most promising semiconductor end markets, including artificial intelligence, autonomous driving and data center.

Intel reported first quarter sales of $16.1 billion, flat with its revenue for the first quarter of 2018. First quarter sales were down 14% compared to the fourth quarter of 2018.

The company reported a net income for the first quarter of $4 billion, down 11% compared with the first quarter of 2018 and down 23% compared with the fourth quarter of 2018.

Sales for Intel's crucial Data Center Group declined by 6% against the year-ago quarter to $4.9 billion. In all, Intel's revenue from outside its PC business declined 5% year-over-year to $7.5 billion, with memory and programmable logic sales declining by 5% and 2%, respectively.

Revenue for Intel's Mobile subsidiary increased by 38% to reach $209 million in the quarter, while the company's Internet of Things Group also posted a sales increase of 8% to reach $910 million.

Sales for Intel's PC-centric business increased 4% year-over-year to reach $8.6 billion.

For the second quarter, Intel said it expects sales to decline to about $15.6 billion, well below consensus analysts' expectations of about $16.85 billion.

By: DocMemory
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