Intel’s fourth quarter boom blows its troubles away

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In his first year or so running Intel, new CEO Bob Swan has spent a stunning amount of time trying to reassure Wall Street that the world’s most dominant chipmaker for PCs and servers could thrive again.

On Thursday, it was Wall Street that was stunned, as Intel reported sales and profits for the fourth quarter that were much better than analysts expected and gave an upbeat forecast for 2020. Fourth quarter sales of $20.2 billion grew 8% from the year before and exceeded the average analyst forecast by $1 billion. Earnings per share of $1.58 were up 40% and 35 cents better than analysts predicted. And the 2020 forecast of $73.5 billion was $1.3 billion better than analysts forecast.

Intel’s stock, already recovering under Swan’s confidence boosting efforts, jumped 6% in after-hours trading to reach more than $67 per share. That’s up 26% from the day Swan’s predecessor, Brian Krzanich suddenly resigned in June 2018, and 53% from when Intel’s shares hit bottom in May 2019 over fears that the company’s engineering and manufacturing mistakes in recent years might lead to a disaster. This is also the highest price Intel’s stock has seen since 2000, before the Internet bubble popped.

New chips for servers featuring much better performance on artificial intelligence and machine learning tasks are key to Intel’s strong performance, Swan told analysts on a conference call after the results were released on Thursday evening. He cited the latest generation of Intel’s popular Xeon family of chips, specifically. “Customers continue to make Xeon the foundation for their A.I. infused data center workloads,” Swan said.

Two key factors in Intel’s results have bolstered Swan’s case. For one, PC sales have held up better than anyone predicted, largely because companies appear to have decided to replace millions of computers running Windows 7, as Microsoft finally decided to cut off support for the aged operating system.

The second factor, even more significant for Intel’s future success, is a revival in sales of chips for servers in corporate and cloud computing data centers. Last year, over and over, analysts and investors asked Swan why Intel’s growth rate in server chip sales—once the company’s strongest segment—had slumped. They were down almost 10% in the first half of 2019. But after leveling off in the third quarter, server chip sales in the fourth quarter suddenly jumped 19%.

The fourth quarter results had to be a sweet vindication for Swan, the first outsider to run the Silicon Valley icon in its more-than-50-year history. Swan joined Intel in 2016 as chief financial officer after a long and distinguished career in finance at companies including General Electric, TRW, and eBay.

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