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Intel says customers stockpiling chips on U.S.-China tension, raises forecast

Intel says customers stockpiling chips on U.S.-China tension, raises forecast
By Reuters
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By Munsif Vengattil and Stephen Nellis

(Reuters) - Intel Corp <INTC.O> forecast current-quarter profit and revenue above estimates and raised its full-year revenue forecast on Thursday, allaying concerns about a global semiconductor sales slowdown and curbs on U.S. sales to Huawei Technologies Co Ltd [HWT.UL].

Intel shares rose 4.9% to $54.70 (£44) in extended trading.

The chip industry is in a slowdown, with research firm Gartner forecasting a drop in global semiconductor revenue to 9.6% to $429 billion in 2019. Chipmakers have also been hit by U.S.-China trade tensions, including tariffs on some products and restrictions on sales to Huawei.

But both factors did not trouble Intel, which was the second chipmaker this week to beat analysts' earnings estimates. On Tuesday, Texas Instruments Inc <TXN.O> was the first, saying U.S.-China trade tensions did not hamper its ability to conduct business in China.

Intel's Chief Financial Officer George Davis told Reuters it had resumed some product sales to Huawei that comply with U.S. regulations, and that tariff threats between the United States and China actually helped second-quarter sales.

"Customers concerned about supply risk in the second half of the year related to those items pulled in some demand into the second quarter," Davis said in an interview. "It isn't a net add to the full year (forecast), but it certainly de-risks some of the full year."

Intel reported second-quarter revenue of $16.5 billion and adjusted earnings of $1.06 per share. Analysts on average had expected revenue of $15.7 billion and adjusted earnings of 89 cents per share, according to IBES data from Refinitiv.

But it was the company's forecast that drove up shares, with revenue and profit expected to be $18 billion and $1.24 per share for the third quarter, above analysts' estimate of $17.72 billion and $1.16 per share.

The company estimated 2019 revenue of $69.5 billion, instead of the $69 billion it told investors to expect in April.

Intel also said it planned to sell the majority of its modem business, including 2,200 employees and a trove of patents, to Apple Inc <AAPL.O> for $1 billion.

Davis told Reuters the payment was all cash. Intel will retain the rights to make non-smartphone modems for self-driving cars and PCs under the deal.

After years of acquisitions outside its core area of processing chips under previous leaders, Chief Executive Bob Swan has set a goal of becoming more disciplined about spending, slowing investments in areas like memory chips and shedding struggling businesses.

Dan Ives of Wedbush Securities said the sales were a step in the right direction.

"We believe further divestitures of non-core businesses would certainly make (Intel) look more attractive, while allowing management to more closely focus on improving core operations increasing the likelihood of future execution, but we are not yet convinced management will move in this direction," he said in a note.

Revenue in Intel's client computing business, which caters to PC makers and remains the biggest contributor to sales, rose to $8.84 billion, beating FactSet estimates of $8.13 billion.

Revenue from its higher-margin data centre business rose to $4.98 billion, above estimates of $4.89 billion according to FactSet.

Intel, the biggest provider of processor chips for PCs for decades, has come to count on data centre chips for most of its revenue growth.


The company estimated a $500 million after-tax gain from the sale of the modem business.

Net income fell to $4.2 billion, or 92 cents per share, in the second quarter, from $5 billion, or $1.05 per share, a year earlier. Net revenue fell 3% to $16.5 billion.

(Reporting by Munsif Vengattil in Bengaluru and Stephen Nellis in San Francisco; Editing by Sriraj Kalluvila and Richard Chang)

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