October 13, 2015 / 8:14 PM / 2 years ago

Intel says data center business to grow less than expected

The sign hanging outside the Intel booth is seen at the International Consumer Electronics show (CES) in Las Vegas, Nevada January 6, 2015.Rick Wilking

(Reuters) - Intel Corp (INTC.O) cut revenue growth forecast for its highly profitable business of making chips for data centers as businesses reduce spending due to weak macroeconomic growth.

The world's biggest chipmaker's shares reversed course to trade down as much as 3.8 percent after the bell on Tuesday following the forecast.

Intel has been counting on the data center business to help offset declining demand for its chips used in personal computers, its biggest revenue generator.

The company agreed in June to acquire Altera Corp ALTR.O for $16.7 billion to expand its line-up of the higher-margin chips used in data centers.

Intel said on Tuesday it expected the data center business to grow in "low double digits" in 2015, compared with its earlier forecast of about 15 percent growth.

The business, the company's second biggest, had grown 19.2 percent in the first quarter, 9.7 percent in the second and 12 percent in the latest quarter.

The company was not "rethinking the long-term growth" of the business, Chief Executive Brian Krzanich said on a post-earnings conference call.

"It's a combination of two things — data center weakness and units — it looks like their units are still pretty weak, they are seeing upside from pricing," analyst Stacy Rasgon of Bernstein said.

The weak data center forecast took the shine away from the company's better-than-expected profit and revenue in the third quarter.

The company also trimmed its 2015 capital expenditure for the third time to $7.3 billion, plus or minus $500 million.

Intel had previously forecast capital expenditure of $7.7 billion, plus or minus $500 million.

The company said it expected fourth-quarter revenue of $14.8 billion, plus or minus $500 million. The midpoint of the range is a marginal increase from a year earlier.

Analysts on average were expecting revenue of $14.83 billion, according to Thomson Reuters I/B/E/S.

Intel said revenue from its PC business fell 7.5 percent to $8.51 billion in the third quarter ended Sept. 26.

Worldwide shipments of personal computers fell 7.7 percent in the third quarter, according to research firm Gartner.

Intel's net income fell to $3.11 billion, or 64 cents per share, from $3.32 billion, or 66 cents per share, a year earlier.

Analysts on average had expected a profit of 59 cents per share.

Net revenue declined to $14.47 billion from $14.55 billion, but beat analysts' estimate of $14.22 billion.

Up to Tuesday's close of $32.04, Intel's stock had fallen 11.7 percent this year, steeper than the 9.4 percent fall in the broader semiconductor index .SOX.

Reporting by Anya George Tharakan in Bengaluru; Editing by Sriraj Kalluvila

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