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Intel profit drops 25 percent as it grapples with weak PCs

The semiconductor giant's first-quarter revenue and forecast for second-quarter sales were broadly in line with expectations. It also reiterated its projections for the full year despite signs that the PC market is weaker.

Intel talked up new processors in January at the Consumer Electronics Show in Las Vegas.
Josh Lowensohn/CNET
Intel managed to eke out quarterly results and guidance largely in line with expectations, despite dismal conditions in the PC market. Still, its net income dropped 25 percent as its key computing market struggles.

The Santa Clara, Calif., company, which makes chips that power the majority of the world's computers and servers, said its revenue for the first quarter totaled $12.58 billion, down 2.5 percent from the previous year. This number was in line with its forecast in January of $12.2 billion to $13.2 billion in sales. With earnings that match about what analysts had projected, Intel's view for the second quarter is strong. The company has reiterated its forecast for the full year, despite a weak first quarter in the computer market.

Chief Financial Officer Stacy Smith noted that Intel's projected revenue for the second quarter -- $12.9 billion, plus or minus $500 million -- is slightly higher than the average seasonal increase. That's because Intel expects customers to replenish inventories as Intel launches its next-generation PC processor, dubbed Haswell. The company also expects a stronger second half of the year.

Analysts polled by Thomson Reuters projected second-quarter revenue of $12.85 billion. For the year, Intel reiterated its expectations for revenue to rise in the low single digits on a percentage basis, much better than the Street's forecast of a less than 1 percent increase.

Many investors had worried Intel's results would fall of a cliff, given the double-digit decline in the PC market this year. Tech research firms Gartner and IDC last week said first-quarter PC shipments posted an ugly slump in the first three months of the year, the worst since IDC started tracking the figures in 1994. The period marked the fourth consecutive quarter of year-over-year shipments decline, and the market is expected to slump for all of 2013.

"I'm a little surprised they were able to show such strong performance versus PC data," Bernstein analyst Stacy Rasgon said. "It doesn't look like from their results that anything is collapsing, and they're bullish about new products."

However, Rasgon cautioned that the back half of the year could be tough for Intel if the PC market doesn't recover as much as the chipmaker expects.

Intel reported first-quarter net income of $2.05 billion, or 40 cents a share, down from $2.74 billion, or 53 cents a share, in the year-earlier period. Analysts polled by Thomson Reuters had projected 41 cents.

Sales in Intel's core PC business slid 6 percent year-over-year to $8 billion. The data center group rose 7.5 percent to $2.6 billion.

Soft demand in its core market isn't Intel's only challenge. The company also faces some uncertainty about its future leadership. Chief Executive Paul Otellini shocked the market in November when he said he would retire in May. Intel has been in the process of selecting his replacement. The company has said it would consider both external and internal candidates; however, the odds are high that the new CEO will come from within Intel.