But worries about gross margins undercut enthusiasm for Intel (INTC) shares, which sank more than 5% late Thursday.
As for Wall Street expectations, the quarter was a blow-out.
The Santa Clara, Calif., chipmaker said it made 74 cents per share, or $3.6 billion in profit, during the last three months of the year. Net income fell 1% from a year-ago. Per-share earnings, flat with a year-ago, topped analysts’ estimates of 63 cents per share, according S&P Capital IQ Consensus Estimates.
Revenue rose 1%, to $14.9 billion, squeaking past S&P consensus estimates of $14.8 billion and within its own guidance of $14.3 to $15.3 billion.
Revenue in Intel's client computing group, which makes chips for PCs, fell 1% to $8.8 billion, still by far its largest sales contributor. Revenue for its data center group, which supplies technology for cloud computing and which has been boosted by its Altera acquisition, was up 5%. Internet of Things group revenue was up 6% to $625 million.
Although Intel made its name building chips for PCs, the growth in data centers, Internet of Things and memory is becoming a larger percentage of the company’s total revenue, said CFO Stacy Smith.
“In 2015, those businesses actually generated more than 50% of the operating profit for the company,” he said.
Gross margin, a measure of profitability, slipped to 64.3%, down from 65.4% in the year ago quarter. For the first quarter of 2016, the company is projecting a gross margin of 58%, or 62% stripping out certain items.
The report “renews concerns about the sustainability of the company's recent momentum given the role server chips have played in aiding overall revenue and gross margin levels over the last year in the face of PC weakness,” said Bill Kreher, a senior technology analyst with Edward Jones.
Still, he believes the uncertainty “is balanced by positive cash flow generation and an attractive dividend, which provides support to the stock in our view. Thus, we maintain our Hold rating on shares.”
Patrick Moorhead, president of Moor Insights and Strategy, says he thinks 2016 will be a better year for sales of Intel's PC and PC-based platform chip.
“Commercial buyers will start to make the transition off of Windows 7 platforms onto a much more secure Windows 10,” he said.
Also a positive are Intel’s new SkyLake chips, which allow commercial PCs to be as thin and light, with as much battery life as consumer PCs.
“That makes a huge difference to businesses where millennials have increased numbers and more and more employees consider a coffee shop their office,” Moorhead said.
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