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Intel Fourth-Quarter Sales May Miss Estimates on PC Doldrums

Intel Corp. gave a disappointing forecast for sales in the current quarter, signaling lackluster year-end demand for personal computers, servers and the chips that run them.

Revenue will be $15.7 billion, plus or minus $500 million, the company said in a statement Tuesday. Analysts had projected $15.9 billion, the  average of estimates compiled by Bloomberg.

Intel’s third-quarter sales reached a record, lifted by processor orders from PC makers that decided to shore up their chip supplies ahead of the holiday shopping season. So far, demand hasn’t come surging back, meaning that customers will again pare orders as they work through those stockpiles of chips. The world’s largest semiconductor maker also backed off an annual forecast for double-digit revenue growth in server chips for data centers and corporate networks, its most profitable business.

“We’re not going to raise the flag and say everything’s good again,” Chief Executive Officer Brian Krzanich said on a conference call.

Intel shares, which had gained 9.6 percent this year, slipped as much as 6 percent in extended trading on news of the reduced target for the data-center unit. The stock had gained 1.2 percent to $37.75 at the close in New York.

Third-Quarter Pickup

Third-quarter net income rose to $3.38 billion, or 69 cents a share, compared with $3.11 billion, or 64 cents, in the same period a year earlier. Revenue rose 9.1 percent to $15.8 billion. Analysts, on average, had predicted a profit of 67 cents a share on sales of $15.6 billion. Adjusted gross margin, or the percentage of sales left after subtracting production costs, widened to 65 percent from 64 percent, Intel said.

The company’s client computing group, which sells PC chips, posted third-quarter sales of $8.89 billion, a gain of 4.5 percent from a year earlier. Demand for PCs will increase in the fourth quarter from the prior three months, in line with normal seasonal gains, the company said.

“It’s my concern that we just have an inventory build that could carry on into the first quarter,” said Kevin Cassidy, an analyst at Stifel Nicolaus & Co. “The market might have thought that PCs would be better into the fourth quarter.”

On Sept. 16, Intel raised its forecasts for the third quarter, citing “replenishment of PC supply chain inventory.” The Santa Clara, California-based company increased its revenue projection at the time to about $15.6 billion from about $14.9 billion.

While the PC market isn’t getting worse, it’s still shrinking. Worldwide shipments fell 3.9 percent in the third quarter, market researcher IDC said earlier this month, a smaller drop than the decline of 4.1 percent in the second quarter. Unit sales in the U.S. rose 1.7 percent, a second consecutive quarterly gain.

Data Center

Intel’s data-center group, which provides chips used in corporate networks and the large cloud-computing systems run by companies such as Google and Amazon.com Inc., had revenue of $4.54 billion, up 9.7 percent from a year earlier. The company had set an annual target of double-digit percentage growth for that unit — a prediction it missed in the first half of the year. On Tuesday, Krzanich said the unit will only achieve “high single-digit” percentage sales growth for 2016.

Large customers who build their own servers have returned to ordering, with sales in the third quarter from cloud customers up 32 percent from a year earlier, Intel said. That strength and solid demand from networking and storage systems customers was offset by the continuing stagnation of the market for servers used by corporations, the company said.

“There’s some disappointment there,” said Stifel Nicolaus’s Cassidy.

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