Intel’s Data Center Business Disappoints in Q3

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Actions of Intelligence (NASDAQ: INTC) fell yesterday after the company reported disappointing third quarter results. Investors were rocked by a 7% drop in revenue for the Data Center Group (DCG), one of the company’s largest and most profitable businesses. Intel also warned that the challenges will persist into the next quarter.

Here’s what investors need to know.

Image source: Intel.

Continued weakness

DCG’s third-quarter revenue declined 7% to $ 5.9 billion, leading to a 39% decline in DCG operating profit due to lower average selling prices ( ASP) and loss of operating leverage.

Sales have shifted from the enterprise and government market to cloud service providers. Cloud service provider revenues grew 15% while sales to businesses and governments fell 47%, which Intel attributed to macroeconomic uncertainty caused by the COVID-19 pandemic.

“In the fourth quarter, we expect the impacts of COVID-19 will lead to lower demand in our data-centric businesses and moderation in demand in the cloud service provider market segment,” Intel warned in its quarterly record.

On the positive side, the Client Computing Group (CCG) saw sales increase slightly to $ 9.8 billion, as the large shift to remote working grew. increased demand for laptops and workstations. However, the strength of CCG was not enough to compensate for the weakness of DCG.

A stark contrast to NVIDIA

The results contrast with its factory-less rival NVIDIA (NASDAQ: NVDA), which has made inroads into the data center. The graphics specialist saw data center revenues soar 167% to $ 1.75 billion last quarter, although that includes Mellanox results; NVIDIA finalized its acquisition of the network equipment company in April. Mellanox accounted for approximately 30% of NVIDIA’s data center business in the second fiscal quarter. While Intel struggles in data centers, NVIDIA is making strides with its new Ampere architecture.

“The biggest news in data centers this quarter was the launch of our Ampere architecture,” NVIDIA CFO Colette Kress commented on the latest earnings conference call. “We are very proud of the team’s performance in launching and ramping up this technological marvel, especially in the midst of the pandemic.”

NVIDIA is looking to leverage its data center momentum with the recent acquisition of Cumulus, which manufactures networking software and “expands our acquisition of Mellanox in building our modern and open data center.” NVIDIA expects data center revenues to grow by low to mid single-digit percentages next quarter on a sequential basis, which looks especially good compared to Intel’s bleak outlook.

Following the post, Bank of America analyst Vivek Arya downgraded its rating on Intel stocks from neutral to underperforming, warning that the company faces numerous execution risks, including a strategy of Unclear manufacturing combined with increased competition from NVIDIA and other Arm-based chipmakers. The analyst lowered his target price on the stock from $ 60 to $ 45.

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