NEW YORK: Intel Corp on Thursday reported that margins tumbled in the latest quarter as consumers bought cheaper laptops and pandemic-stricken businesses and governments clamped down on data center spending, news that sent its shares down 10%. Intel, the dominant provider of processor chips for PCs and data centers, has struggled with manufacturing delays. In July, it said its next generation of chipmaking technology was six months behind schedule.
Chip sales are booming, but customers want lower-priced chips rather than Intel's pricier high-performance offerings, dragging down overall gross margins. The pandemic has given Intel a boost in the form or surging laptop sales as employees and students work and learn from home. Sales in its PC group were $9.8 billion, beating analyst estimates $9.09 billion, according to FactSet.
But Intel sold a higher volume of less-profitable chips in its PC business, driving operating margins down to 36% in the third quarter from 44% a year earlier.
"You're seeing the demand shift from desktops and higher-end enterprise PCs to the entry-level consumer and education PCs," Chief Financial Officer George Davis told Reuters in an interview. "Even though the volume is good, your (average selling prices) are coming down, so that impacts your gross margins a little bit."
Davis said a similar dynamic hit the data center business, where spending by government and business customers plummeted 47% after two quarters of growth and operating margins dropped from 49% to 32%. Revenue from Intel's data-center business fell 7% to $5.9 billion in the reported quarter versus analyst of $6.21 billion, according to FactSet.
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