isn’t known for granting favors, but the iPhone maker did Intel a solid by taking the modem-chip business off its hands.
That still leaves the chip-making giant with plenty of work to do, though this wasn’t fully evident in its strong second-quarter report late Thursday. Revenue for the quarter came in nearly $1 billion above the company’s forecast, mostly from a surprising uptick in PC sales. Intel’s vital data-center business also surprised pleasantly, even though sales there were down 10% year over year as cloud-service operators cooled capital spending relative to a big jump last year.
But only a portion of the quarter’s upside flowed through to Intel’s full-year forecast. Citing China trade uncertainty, Intel Chief Executive Bob Swan said he was “a little more cautious” about the second half of the year than he was three months ago. Intel is also still scrambling in its costly effort to ramp up its latest 10-nanometer production technology. Arch-rival
Taiwan Semiconductor Manufacturing
is already in full production on the advanced process.
So selling the unit to Apple is a smart move. It removes a money-losing business that was unlikely to stick around for the long term anyway given Apple’s desire to design its own processors. It also frees up resources for more significant challenges. Intel says it expects as much as $500 million in cost savings this year from the sale, but it also maintained its operating-margin target for the full year at 32%.
It can ill afford more delays. The company initially planned to launch chips produced on its 10-nanometer process in 2017. PC versions of those chips are expected to ship in volume later this year. But Intel said Thursday that 10-nanometer chips for servers will now see a “volume ramp” in the second half of 2020—later than previously implied. Wall Street took note. Matthew Ramsay of Cowen said the move will give rival AMD a full year on the market with its 7-nanometer Rome server chips produced by TSMC.
Intel went into its report as the weakest stock in semiconductors, with its share price up only 11% for the year. But the stock still slipped a bit Friday morning, as investors realized the chip maker still has formidable challenges ahead. Getting $1 billion out of Apple may turn out to be the easy part.
Write to Dan Gallagher at email@example.com
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