Intel: On-premise server demand declines as cloud booms

Chip shortage to continue during 2019 as Intel prioritises high-end server demand for cloud computing

Chip giant Intel has admitted that the chip shortage will continue into at least the second half of the year. The admission came as the company reported its fourth quarter and record full-year 2018 results - and chief financial officer and interim CEO Bob Swan claimed that 2019 would be another record year for the company.

Furthermore, while the company enjoyed robust growth in both the fourth quarter and full year in every business segment, it admitted that ‘enterprise revenues' had fallen, indicating a decline in demand for on-premise server hardware.

However, Intel did not unveil a successor to former CEO Brian Krzanich, as expected. Swan told investors in a conference call that there would be no big announcement in the foreseeable future.

Fourth quarter revenues increased nine per cent from $17.1 billion to $18.7 billion, while full-year revenues increased by 13 per cent from $62.8 billion to $70.8 billion. Net income for the full financial year weighed in at a healthy $21.1 billion.

Furthermore, added Swan, Intel didn't just record record revenues overall, but in every business segment.

The PC centric business was up 10 per cent in the fourth quarter to $9.8 billion - representing half of Intel's overall business and comfortably the biggest business segment at Intel. For the year, the company achieved PC revenues of $37 billion, up nine per cent on 2017.

The company attributed this strong performance in an otherwise largely moribund market segment due to demand for business and gaming PCs and laptops.

Intel's next-largest segment, the datacentre group, pulled-in revenues of $6.1 billion in the quarter, up nine per cent and driven by cloud computing, the company claims. Datacentre revenues for the year were up 21 per cent to $23 billion.

However, enterprise revenues, the company added, declined by five per cent, indicating a fall in demand for on-premise servers.

Underlying the company's results, though, was an ongoing chip shortage, partly driven by hiatus caused by the company's struggles to shift from 14nm to 10nm process manufacturing, as well as cloud-sector demand for 14nm Xeon server processors.

As a result, Intel focused on the most profitable business segments - server chips - to the detriment of consumer grade and lower end products.

"Supply remained constrained particularly at the value end of our product range," Swan told financial analysts on a conference call to discuss the results.

Investors were also warned that, partly due to stockpiling during 2018, demand might be softer throughout the first half of 2019. However, 10nm Xeon microprocessors won't appear in volume until well into 2020, while 10nm chips won't be appearing in desktops and laptops in volume until the fourth quarter.