Intel Server Sales Jump 78%, Q4 Outlook Dims: Rapid Earnings Reaction

Intel's data center revenue surged by 78% in Q4, marking the company's strongest growth in 15 years, but its earnings outlook for the quarter has dimmed. The company's shares plummeted nearly 18% in after-hours trading due to this mixed news. Intel's server chips are in high demand, outpacing production capacity, but the company's forecast suggests this surge won't be enough to offset an anticipated slowdown in PC sales through the first half of next year.

The company reported revenue of $16.5 billion, a 21% increase from the previous year, with data center and AI revenue reaching $7.3 billion, a remarkable 78% growth. For the fourth quarter, Intel is now projecting revenue between $15.0 billion and $16.0 billion, lower than the $16.8 billion generated in the third quarter. Intel's chip manufacturing, which carries high fixed costs, sees extra production volumes quickly translating into profits.

Data center operating income nearly tripled to $3.0 billion, despite a decline in PC sales. Management's primary focus is on increasing supply of Xeon processors, indicating that demand isn't the bottleneck. Intel's guidance for GAAP gross margin has been cut to 37.1% from 43% in this quarter, although the reason for this reduction isn't detailed in the report. Consequently, GAAP earnings per share dropped to $0.60 from $0.90, despite a sharp rise in operating income.

Last year's quarter included a $5.45 billion gain from the sale of most of Intel's stake in Altera. However, the diluted share count increased after significant stock sales, including a $23 billion public offering this quarter, causing profits to be spread across a larger number of shares. Investors are advised to monitor how well the company's fourth-quarter gross margin adheres to the projected 37.1% figure and whether increased Xeon supply sustains growth in data center sales despite a decline in PC sales.