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Intel profits slide for 2012, but data centre business growing

Intel profits slide for 2012, but data centre business growing

Continued weakness in the PC market hit the chip maker

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Intel saw its sales and profits drop in 2012 as the company was hit by slower demand for personal computers and its continued inability to make it big in the smartphone and tablet markets, although its data centre business continued to grow.

The world's biggest chip maker reported revenue of $53.3 billion (£33.4 billion) for the year, down 1.2% compared with 2011, and posted net income of $11 billion (£6.9 billion), down 15%. Full-year revenue from its PC client division, which accounts for more than half its revenue, fell 3% year-on-year.

Intel also reported its fourth-quarter results yesterday. Revenue slipped 3% and net income was down 26% from the final quarter of 2011, and while earnings per share slipped from $0.64 to $0.48, they were $0.03 above a consensus estimate from analysts polled by Thomson Financial.

The root of Intel's PC client problems lies in the declining market for PCs, where it has traditionally been the market leader, and the rise in popularity of tablet computers, where it faces much stronger competition.

Worldwide PC shipments fell 5% in the last three months of the year compared to the same period of 2011, according to an estimate from Gartner. The market amounted to 90.1 million units, it said.

Much of the drop is being blamed on tablet computers, which rather than emerging as a new class of machine that takes a place in the home between smartphones and PCs, is becoming a replacement for a PC, said Gartner.

In the tablet market, Intel faces competition from companies like chip makers relying on chip designs from competitor ARM.

However, Intel's data centre business recorded better results. Sales rose 6% to $10.7 billion as demand for its server chips climbed.

"We made tremendous progress across the business in 2012 as we entered the market for smartphones and tablets, worked with our partners to reinvent the PC, and drove continued innovation and growth in the data centre," said Paul Otellini, Intel president and CEO.

"As we enter 2013, our strong product pipeline has us well positioned to bring a new wave of Intel innovations across the spectrum of computing," he said.

For the coming year, Intel said it expects to see sales rise in the low single-digit percent range.

Some of the company's hopes for 2013 stem from new chips it plans to release for laptops, tablets, and smartphones, Otellini said in a conference call with analysts.

"Looking ahead, I am exited about a strong pipeline of products coming to market," he said.

Intel plans to launch its Haswell chip in the first half, a new laptop processor that will deliver "the largest generation-to-generation battery life improvement in Intel's history," said Otellini. The executive said the new chip should help its PC partners produce thinner and lighter computers with longer battery life.

It also expects to see more Intel-based tablets shipping beyond the 10 that are already available. And the number of smartphones based on Intel chips will expand beyond the seven devices currently available, said Otellini.

Intel's new chips will be "extremely competitive with ARM designs," he said.

Intel also plans to launch its first Xeon and Atom chips produced on its leading-edge 22-nanometre manufacturing process targeted at the data centre market.

Those new chips should return the data centre group to double-digit percentage growth this year, Intel CFO Stacy Smith said during the conference call.

In after-hours trading, the company's stock on the Nasdaq was trading at around $21.60 per share at the time of this report, down from its close at $22.68.

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