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Intel, IBM give upbeat forecasts despite sluggish growth

A sign is posted at the Intel company headquarters on July 20, 2011 in Santa Clara, California.

Justin Sullivan/Justin Sullivan/ AFP/Getty Images

Even as they struggled to deliver growth in the first quarter, two bellwethers of the technology sector gave upbeat forecasts for the full year, suggesting that customers are ready to embrace the next generation of PCs, servers and computer services.

Intel Corp., the world's largest semiconductor company, said sales would rise this quarter as the worst of an industry-wide supply problem that had hurt PC sales appears over and as more businesses upgrade to more powerful and energy-efficient servers.

At the same time,IBM Corp., the world's No. 1 computer services company, raised its profit forecast for the full year, indicating to the Street a smooth handover of power to Ginni Rometty, who replaced Sam Palmisano as chief executive officer in January.

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Investors, however, were largely unimpressed. In after-hours trading, IBM shares surrendered the 2.3 per cent they had gained Tuesday in advance of the results. And Intel shares fell 3 per cent, as investors focused on sliding earnings and a top line that is struggling to grow.

The Santa Clara, Calif.-based chip maker met the Street's expectations, which included a 13 per cent drop in profit as it scrambles to enter the smartphone market and deals with the lingering effects of an industry-wide shortage of hard disk drives that followed last year's floods in Thailand.

Intel reported earnings of $2.7-billion (U.S.) or 53 cents a share on essentially flat sales of $12.9-billion. The consensus estimate was for profit of $2.6-billion or 51 cents on $12.8-billion.

The company said it expects revenue to rise 5 per cent in the current quarter to $13.6-billion, which is slightly above the average forecast on the Street. Intel also maintained guidance for the full year, sticking with an earlier forecast that revenue could increase as much as 9 per cent.

"The first quarter was a solid start to what's expected to be another growth year for Intel," Paul Otellini, the president and CEO, said in a release.

The company blamed flat growth and the drop in profit partly on the hard drive shortages. But Mr. Otellini pointed to the arrival this quarter of the first smartphones powered by Intel chips and the acceleration of the company's new server product as catalysts for growth.

The success or failure of Intel's efforts to catch up to ARM Holdings Group, Samsung Electronics Co. and others in the market for smartphone chips won't be fully known until 2013 or 2014, some analysts suggest, which has weighed on the stock.

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Revenue slipped from a year earlier for both PC and server chips, but sales in the software and services group, which includes last year's acquisition of security firm McAfee Inc., more than doubled to $571-million.

IBM, meanwhile, reported a slight rise in sales to $24.7-billion, up from $24.6-billion a year earlier, but missed analysts' estimates by a fraction. Profit rose 7.1 per cent to $3.1-billion or $2.61 a share from $2.9-billion or $2.31 a year earlier.

IBM has been investing heavily in big growth areas that include cloud computing and data analytics, but those outlays have yet to have a major impact. The company realized slim growth in its services business, while revenue from software services climbed 7 per cent and hardware sales fell 7 per cent.

IBM's services backlog at the end of the quarter, which measures the current work value under contract, dipped to $139-billion from $141-billion at the end of December.

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