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Intel’s cloud and IoT-focused businesses deliver disappointing growth

Intel says its transformation to focus on cloud and IoT is on track, but these key business areas fail to deliver as much growth as expected

Intel has reported revenue of $13.5bn, 3% up from a year ago, but profit for the latest quarter was down 51% to $1.3bn, mainly due to restructuring costs of $1.4bn.

At the end of the first quarter of 2016, Intel announced plans to cut 12,000 jobs – 11% of its global workforce – as part of a restructuring initiative to focus on its businesses linked to the cloud and the internet of things (IoT).

The company expects the restructuring exercise to deliver $750m in cash savings in 2016, and $1.4bn in lower annual costs starting in 2017.

“Second-quarter revenue matched our outlook and profitability was better than we expected,” said CEO Brian Krzanich. “In addition, our restructuring initiative to accelerate Intel’s transformation is solidly on track. We are gaining momentum heading into the second half.

“While we remain cautious on the PC market, we are forecasting growth in 2016 built on strength in datacentres, the internet of  things and programmable solutions.”

But slower-than-expected growth in chip sales for datacentres, which was expected to make up for slowing PC sales, sent Intel’s share price 3% lower in after-hours trading, according to Reuters.

Datacentre revenue was up just 5% to $4bn, which was below analysts’ estimates of $4.16bn and less than half the 11% growth of the previous year, while IoT revenue was up only 2%, compared with the same quarter a year ago, to $572m.

However, revenue from Intel’s traditional PC business, which includes chips for mobile phones and tablets, fell 3% year-on-year to $7.3bn, while non-volatile memory solutions group revenue was down 20% to $554m.

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The Intel security group revenue of $537m was up 10%, but Intel is reportedly considering selling its security business five years after completing its $7.7bn acquisition of McAfee and two years after rebranding it as Intel Security.

In first-quarter financial results, the Intel security group was one of the best performers, with revenue of $537m, up 5% on the previous quarter and 12% higher year-on-year.

Intel Security is therefore a key asset for the company that could help recoup the $7.7bn acquisition cost or even more if the right buyer can be found.

Intel’s forecast of third-quarter revenue of $14.9bn was above the average analyst expectation of $14.63bn.

Intel executives believe corporate customers will spend more for datacentre chips later this year, when new chips aimed at the enterprise and based on its Broadwell micro-architecture are expected to be launched, according to MarketWatch.

But analysts are sceptical and if investors are to believe that Intel can reinvigorate its business and find stronger growth, the company’s cloud business will have to deliver a stronger performance in the third quarter, the title said.

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