Intel Expects First Full-Year Revenue Decrease In Three Years, Qualifying 10nm Ice Lake CPUs

Credit: IntelCredit: IntelIntel today reported its first quarter 2019 results today and gave yet another update on the progress of its 10nm production. Intel CEO Bob Swan stated the company is on track with its 10nm production, in fact doubling its production rate and forecasting higher 2019 10nm production than planned. Swan also reported that the company has begun qualifying its 10nm Ice Lake processors, which is a critical first step towards volume production. Swan also noted that the company's Ice Lake server chips will come in 2020, "earlier versus later" in the year.

These positive notes came against a backdrop of decreasing demand, though, as the company also expects to notch its first full-year revenue decrease in three years. While revenue at $16.1B was in line with expectations from three months ago, as a result of a softening market after a record breaking 2018, Intel has revised its full-year revenue outlook downward by $2.5 billion, to $69.0B, representing a decline of 3% compared to the $70.8B the company reported for 2018.

One year ago, Intel reported earnings well ahead of everyone's expectations, with its data-centric businesses collectively growing 25%. This kicked off a series of great earnings results for the company, with especially the cloud segment growing at up to 50%, resulting in total revenue that was 13% higher than the $62.8 billion of 2017, at $70.8 billion. This higher than expected growth resulted in reports of demand outpacing supply, resulting in shortages. The main victim of this was the Internet of Things business, which had been growing at double digits for years, which now saw a decline of 7% year-on-year, as the company prioritized the production of Core and Xeon processors above Atom and Pentium/Celeron.

Even amidst those shortages, last quarter saw the first signs of worsening market conditions, as revenue came in $500 million below the company's expectations nonetheless. At the time, Intel cited significantly weaker modem demand (as a result of weaker phone demand), cloud customers absorbing the capacity that they had put in place in huge volume during the first nine months of 2018, weakness and slowdown in China, and a weakening NAND environment with falling SSD prices.

In that sense, the results and outlook presented today are just a continuation of the factors that started playing out last quarter, with tough year-on-year comparisons given the intense growth last year. Revenue came in at $16.1B, the same as last year. However, gross margin declined by 4.0 points to 56.6%, at the lower end of what Intel calls its historical range of 55%-65%, although the company is usually above 60%. Net income was $4.0B, down 11% from last year.

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