As The PC Industry Plummets, Intel Manages To Beat Estimates In Fourth Quarter Earnings

by Aaron Tilley

Intel CEO Brian Krzanich delivers a keynote address at CES 2016 in Las Vegas (Photo credit: Ethan Miller/Getty Images)

Chip maker Intel INTC +2.58% on Thursday reported financial results that beat Wall Street estimates.

Intel reported $14.9 billion in revenue, slightly higher than forecasts of $14.8 billion, according to analysts polled by Yahoo YHOO +3.33% Finance. Earnings per share were $0.74 for the quarter, comfortably beating estimates of $0.63.

“Our results for the fourth quarter marked a strong finish to the year and were consistent with expectations,” said Intel CEO Brian Krzanich in a statement. “Our 2015 results demonstrate that Intel is evolving and our strategy is working. This year, we’ll continue to drive growth by powering the infrastructure for an increasingly smart and connected world.”

But in after-hours trading, Intel’s stock dropped more than 5%, as the company’s gross margins declined. Fourth quarter gross margins came in at 64.3% from 65.4% from the previous year. And 2016 doesn’t look much better, with expected gross margins of 58% in the first quarter 2016.

Intel has been talking about its “post-PC” identity, and these numbers show how much the data center holds for the Santa Clara, Calif.-based chip maker’s future. Its data center division grew 5% from the previous year with revenues of $4.3 billion — slower than it has in previous quarters. And its Internet of Things division — which includes software and services as well as hardware for hooking up the world — grew faster year over year at 6% with revenues of $625 million.

Unsurprisingly, the PC business, which still provides an outsized portion of Intel’s revenue, continues its slowdown. The Client Computing Group — which includes Intel’s PC as well as mobile efforts — shrunk a little. From the same quarter of the previous year, the division is down 1% with revenue of $8.8 billion. Over all, the PC business business continues to shrink. Analysts firms Gartner IT +1.18% and IDC said global PC shipments fell 8.3% and 10.6%, respectively, in the fourth quarter over the previous year.

Despite the over all decline in the PC business, some onlookers believe 2016 will see a bit of recovery with Microsoft’s Windows 10 and Intel’s new PC chips. “I do think 2016 will be much better for PCs and PC-based platforms like convertibles and 2-in-1s,” said tech analyst Patrick Moorhead in an email. “Commercial buyers will start to make the transition off of Windows 7 platforms onto a much more secure Windows 10. Intel’s SkyLake, with its hardware-based security, rounds out what businesses will be looking for.”

“We saw roughly a year without desktop enterprise upgrades,” said Krzanich on the earnings call. “We’re hearing good response with interest in new form factors. … We’ve just got to get past macroeconomic factors.”

Intel also now has a huge business in the ”Field Programmable Gate Arrays” market, since Intel closed its massive $16.7 billion acquisition of Altera ALTR -1.92% late last year, but the company hasn’t started breaking out that business in its financials yet. FPGA chips can be reprogrammed after they’re manufactured and are increasingly being used to boost performance in data centers. Intel said it would start pairing its server chips with these FPGAs for its data center customers. On the earnings conference call, Krzanich said the company would start sampling the Intel server chip-FPGA pairing to big cloud customers in the first quarter of this year.

Intel has also been trying to stay aggressive in the computing devices that come after PCs. Since losing out in the mobile business, Intel has been trying to fit into wearables, drones and other kinds of robots. At the company’s keynote address last week at the Consumer Electronics Show, Krzanich announced partnerships with New Balance , Oakley, and drone maker Yuneec, among others. Last week, Intel also acquired German drone company Ascending Technologies for an undisclosed amount. For all the attention Intel likes to throw on these new businesses, we’ve yet to see many results financially.