MarketWatch First Take: Intel suggests the chip recovery is here, even as rivals are still waiting

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For Intel Corp., the recovery from a semiconductor downturn is already happening, even as some of its chip brethren are still waiting to feel the effects.

The chip giant reported record revenue and a full-year outlook that was $1.2 billion higher than its previous guidance Thursday afternoon. Intel INTC, +0.99%  said that its data-center business recovered in part thanks to $200 million in revenue from some government and service-provider customers that was moved up ahead of anticipated tariffs.

Overall, Intel’s data-center business was up 4%, while Wall Street had been anticipating a drop of 8.5% in the quarter. Intel also noted that its data-center business was almost 50% of its total revenue in the quarter, and referred to it as its “core business.” Intel shares surged as much as 8% in after-hours trading, and then fell back to a gain of about 4% at the end of the session.

The data center has been both a boon and a bust for chip makers, continuing to fuel the cyclical nature of the business with its heavy purchasing, followed by a time of digestion.

“What we did experience last year was a gangbuster year,” Intel Chief Executive Bob Swan said on the earnings conference call, adding that the past three quarters coming into the third quarter were when the cloud providers went through digestions. In the third quarter, high-performance compute led the return.

“[We] started to see them come back into the market to really begin to purchase a little bit more, so how long that cycle lasts is going to be a function of several variables, but their end demand seems to continue to be relatively strong,” Swan said.

So far this earnings season, not all chip makers have seen the same kind of rebound. Texas Instruments Inc. TXN, -0.45%  started the quarter with a thud, not declaring any kind of bottom to the current downturn, and said the trade war and tariffs were causing customers to pull back on purchases. A good part of TI’s business is in the automotive sector, where its embedded business saw the most pronounced declines, along with communications equipment.

“This thing we’ve been in, it [has been] for four quarters and it’s going to be longer than that,” TI Chief Financial Officer Rafael Lizardi told analysts Tuesday.

On Wednesday, Xilinx Inc. XLNX, -0.76%  surprised investors with an outlook that called for a bottom in the first calendar quarter, in large part due to the impact of the U.S. ban on selling products to Huawei and macro-related weakness, but it still expects its data-center business to be strong.

Intel did see some sluggishness in its PCs but it mostly blamed itself for that. Overall, its PC-centric business was down 5%, as it still could not meet all the demand for its processors, especially at the lower end of the market.

The crosscurrents in tech hardware are in full evidence so far this quarter, especially in the data center, which has been a big driver of past growth. Whether Intel is an outlier or a canary, investors won’t know for sure until more companies chime in over the next few weeks — specifically Advanced Micro Devices Inc. AMD, +1.15%, which reports Tuesday, and Nvidia Corp. NVDA, +0.91% in November.

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