Intel Corp (NASDAQ:INTC) stock plunged following a surprise drop in data center sales with a tepid forecast indicating the chip giant might be losing its lead in PC chips. Shares dropped almost 10% after the company announced weaknesses in its Q3 earnings report’s data centre segment.
Intel data centre sales drop 10% YoY in Q3
The company derives most of its revenue from the data centre business, but its profits suffered almost 10% in Q3 2020 compared to a year ago. Sales to enterprises and government clients who are the main customers were affected by a weak economy due to the pandemic. The company has indicated that sales to cloud computing providers will continue to be weak in the current period.
Narrowing profit margins and declining prices have affirmed concerns that the company may be losing its lead in the chipmaking industry. This has exposed Intel to its strongest competition for almost a decade. On Friday, Bank of America downgraded the company’s stock from neutral to underperform. The bank pointed to uncertainty on the company’s new chips and the lack of a plan to update or fix its manufacturing challenges as the reason for the downgrade.
Intel considering outsourcing manufacturing of next-generation chips
In July, the company said that it was delaying its 7-nanometer processors for computers until 2022 and for servers until 2023. Intel could start relying on other manufacturers for the production of its chips. Intel CEO Bob Swan indicated that they will decide on whether they will manufacturer their next-generation products on the company’s manufacturing footprint or seek third-party manufacturing services or a mix of both.
Swan said in a conference call that they are still contemplating on how much outsourcing they will need. However, Loop Capital Markets’s analyst Cody Acree said that the excuse of the pandemic the company used as the reason for revenue decline was unacceptable. This is because there has been an increase in PC demand in recent months that will not have occurred were it not for the pandemic.