Intel beats Wall Street estimates in earnings report, but profits slide

SANTA CLARA -- Intel handily beat Wall Street estimates on revenue and earnings per share in its third quarter report Tuesday, aided by the growth of cloud computing.

But profit of $3.1 billion slid 6 percent from $3.3 billion a year ago.

Sounding upbeat on delivering results that topped expectations, CEO Brian Krzanich said he sees the slumping market for personal computers "beginning to stabilize" while the growing needs of the infrastructure that powers the smart and connected world continue to add to Intel's bottom line.

The giant chip company is facing challenges in several areas, with a weak market for PCs and economic troubles in China, one of its major markets, but has balanced that with growth in sales of chips to data centers, in the Internet of Things business and in memory chip sales.

"All in all, they had a really solid quarter," said Betsy Van Hees of Wedbush Securities. "They're performing well despite a challenging market."

Stacy Rasgon, an analyst with Sanford Bernstein, said Intel failed to meet growth targets for its group that sells to data centers, which saw a 12 percent increase in sales from a year earlier, short of a target of 15 percent.

"It was the best they could do in a bad environment, to hold their own," he said.

The Santa Clara chip giant reported third-quarter revenue of $14.5 billion and earnings per share of 64 cents. The consensus of analysts polled by Thomson Reuters before the earnings were released was $14.22 billion in revenue and 59 cents a share. In the same quarter of 2014, Intel reported revenue of $14.6 billion and earnings of 66 cents a share.

Intel was down 3.15 percent to $31.03 a share in after-hours stock market trading.

Krzanich said sales of Intel's new 6th Gen Core processor had been greeted enthusiastically by customers.

He told analysts in a conference call that Intel is "figuring out where we can go in and make a little bit of money" on tablets and phones, forming partnerships such as deals with Chinese companies Rockchip and Spreadtrum for specific products.

The release of Windows 10 has yet to buoy PC sales, as people hang on to their machines longer before replacing them. Windows 10 was a free upgrade, so there was no need to buy a computer to get the new operating system.

Intel has been trying to decrease its dependence on sales of PCs, which have seen declining with the growth of mobile. Research firm Gartner said shipments of PCs worldwide fell 7.7 percent in the third quarter, not a healthy trend for a business whose largest revenue source is sales of chips for PCs.

Intel is by far the dominant player in selling chips for servers, with an estimated 90 percent or more of the market. It recently acquired Altera in a $16.7 billion deal targeted at a chip that is increasingly being used in servers.

FILE - In this Jan. 7, 2010, file photo, people are silhouetted in front of the Intel sign at the International Consumer Electronics Show (CES) in Las Vegas. (Laura Rauch/AP photo)

The more recently formed Internet of Things group had $581 million in sales, a fraction of the company's quarterly revenue, but up 10 percent from a year ago.

The Internet of Things group was created by Intel to tackle the growing market for tiny processors and sensors that are scattered everywhere -- in cars, thermostats, clothing and more --- to create vast networks that gather information and respond to changes in the environment. Intel also dived into wearable devices, last year buying Basis, a smartwatch company, and introducing a health bracelet, smart earbuds and even a shirt, dress and bra with wearable tech.

"I would say it's pretty much as expected," said Mark Hung of Gartner. "Everybody knew PCs are struggling, the cloud is strong and the Internet of Things is small."