By Therese Poletti at Marketwatch
Intel Corp. expects slower growth in its data center business, which powers the servers that run businesses and the cloud, adding to the jitters of investors not too thrilled with the chipmaker’s third quarter results.
The chip giant told investors on its analyst call that it expects to see low double-digit growth in its data center business this year, down from a previous forecast of 15%. That’s a concern because Intel’s INTC, -2.56% data center business is its biggest growth engine right now, thanks to a boom in cloud conversions. In the third quarter, its PC business fell 7% to $8.5 billion in total revenue, while data center sales rose 12% to $4.1 billion.
Intel CEO Brian Krzanich told analysts that its forecast for slightly slower revenue growth in data centers was due in part to expectations of fewer orders from cloud computing companies in the fourth quarter, which is often inconsistent, or “lumpy.”
“Cloud enterprises tend not to do large purchases in the fourth quarter,” Krzanich said in Tuesday’s conference call. “Now, they have in the past, at times, but in general they don’t because the fourth quarter is their selling season so they don’t want to disrupt their systems during that quarter.”
Some of the slowing may also be due to economic factors, including a slowdown in some Asian markets, and hefty growth for the data center business last year makes comparisons more difficult. Last year, Intel’s data center business grew 25% year-over-year in the fourth quarter, to $4.1 billion.
Krzanich added that Intel is developing a broad spectrum of products for the data center beyond the core processors, including products for networking, and that the specialized FPGA chips it is developing with soon-to-be-acquired rival Altera Corp. ALTR, +0.80% will further boost its product line.
The slowdown was not completely unexpected outside Intel. In July, Bernstein Research analyst Stacy Rasgon downgraded the stock, noting that its outlook for the data center for the second half of 2015 “appears hugely optimistic, calling for the strongest (second half) we’ve ever seen.”
Intel’s big ambitions for its data center business seem to have been too grand, so investors already frustrated with the ongoing PC slump will have to account for slightly slower growth in Intel’s hottest business.