Intel drops on weak results for its data center group

Intel shares fell as much as 10% in extended trading on Thursday after the company reported fiscal third-quarter earnings that were stronger than analysts had expected but showed new weakness in its data center business.

Here’s how the company did:

• Earnings: $1.11 per share, adjusted, vs. $1.11 per share as expected by analysts, according to Refinitiv.
• Revenue: $18.33 billion, vs. $18.25 billion as expected by analysts, according to Refinitiv.

Overall, Intel’s revenue in the quarter, which ended Sept. 26, declined 4% on an annualized basis, according to a statement. In the prior quarter revenue had increased 20%.

Intel’s Data Center Group came up with $5.91 billion in revenue, down 7% and less than the FactSet consensus estimate of $6.21 billion. Intel said revenue from enterprises and governments went down 47% after two quarters of growth above 30% because of the coronavirus pandemic, but cloud revenue in the quarter grew 15%. Average selling price across the division was 15% lower than in the year-ago quarter.

Intel’s largest business, the Client Computing Group that sells PC chips, produced $9.85 billion in revenue, up 1% year over year and above the $9.09 billion consensus among analysts polled by FactSet. Earlier this month technology research company Gartner estimated that PC shipments grew 3.6% in the third quarter, as people kept buying machines to work and study from home.

Intel’s Non-Volatile Memory Solutions Group had $1.15 billion in revenue, down about 11% and lower that the $1.50 billion consensus. On Tuesday South Korean memory maker SK hynix said it would buy part of that division, Intel’s NAND memory and storage business, for $9 billion.

Intel’s operating margin narrowed to 27.6% from 33.6% in the year-ago quarter. Operating margin for the Data Center Group reached 32%, down from 49%.

With respect to guidance, Intel said it expects $1.10 in adjusted earnings per share on $17.4 billion in revenue in the fiscal fourth quarter. The revenue forecast implies a decline of about 14%. Analysts polled by Refinitiv had been looking for $1.07 in adjusted earnings per share and $17.36 billion in revenue.

In July executives said Intel was evaluating how it might begin relying on other companies to manufacture its chips, and on Thursday CEO Bob Swan said Intel should be able to describe its decision in January.

“I would say we feel very confident in the ability of us being able to port to TSMC,” Swan said, referring to the Taiwanese manufacturer. He said Intel is “increasingly confident” that, if it were to become more reliant on TSMC, it would then be able to bring manufacturing back.

In the fiscal third quarter Intel announced the departure of engineering leader Murthy Renduchintala and said McKinsey executive Safroadu Yeboah-Amankwah was joining as chief strategy officer.

During the quarter Intel did not announce progress on its goal of increasing the ranks of women and minorities in leadership positions. The company last issued statistics in December, saying that 72.6% of its global employees were male and that 61.2% of U.S. employees were White or Asian.

Excluding the after-hours move, Intel share are down about 10% since the beginning of 2020, while the S&P 500 is up 7%.

Shares of competing chipmaker AMD rose as much as 2% in extended trading after the announcement.

WATCH: CNBC’s full interview with Intel CEO Bob Swan