Intel profit sinks 27% on dreadful PC sales

January 17, 2013: 7:15 PM ET
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NEW YORK (CNNMoney)

Intel's attempt to reinvent the PC hasn't worked yet.

The world's largest chipmaker reported a quarterly profit on Thursday that fell 27% from year-ago results, dragged down by slumping PC chip sales.

Intel sold 6% fewer PC chips in the fourth quarter -- its biggest business, and one that accounts for nearly two-thirds of its overall revenue.

The results weren't unexpected. Worldwide PC shipments fell by 5% in the fourth quarter and 3.5% for 2012, according to Gartner. It was the first time since the dot-com bust of 2001 that PC shipments fell from one year to the next.

The quarter "played out largely as expected," Paul Otellini, Intel's outgoing CEO, said in a prepared statement. He called the current business climate "challenging."

Intel's net income fell to $2.5 billion, or 48 cents per share, in the fourth quarter. Sales for the Santa Clara, Calif.-based company fell 3% to $13.5 billion.

For the current quarter, Intel expects revenue of between $12.2 billion and $13.2 billion, roughly in line with Wall Street analysts' expectations. For 2013, Intel predicts sales will increase by a percentage in the low single digits, also matching with analysts' forecasts.

Shares of Intel (INTC) fell 4% after hours.

Intel's data center chip sales were the one ray of sunshine in an otherwise gloomy quarter. Sales in that unit rose by 4% in the fourth quarter. All other chip sales -- including mobile -- fell by 7%.

The company's profit was slightly better than it had expected, with gross margin clocking in at 58%, besting the 57% target.

Though Intel insists that it has the designs and products that users will crave in the future, it has been stymied by poor PC sales. "Ultrabook" PCs -- a brand name Intel controls -- failed to reach the 40% of all laptop sales threshold that Intel hoped for.

Industry analysts say Intel and the PC makers have failed to overcome the iPad challenge.

"Once we imagined a world in which individual users would have both a PC and a tablet as personal devices," said Mikako Kitagawa, principal analyst at Gartner. "[Now] we hypothesize that buyers will not replace secondary PCs in the household, instead allowing them to age out and shifting consumption to a tablet."

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