Intel's cloud and IoT businesses fail to justify restructuring

Intel has certainly made progress on its restructuring initiative to focus on the cloud and the internet of things (IoT) but these key businesses failed to deliver significant enough growth to boost slowing chip sales.

The company reported revenue of $13.5 billion which is a 3 per cent increase from the previous year. However, profit for the latest quarter was down by more than half (51 per cent) to $1.3 billion, which was primarily a result of high restructuring costs of $1.4 billion.

Intel had announced its plan to cut 12,000 jobs (11 per cent of its global workforce) at the end of the first quarter of 2016. This was a move intended to help it make a smoother transition to focusing on its businesses working in the cloud and in IoT. Intel expects its restructuring to save it $750 million in cash during 2016 and to lower its annual costs by $1.4 billion in 2017.

The company's CEO, Brian Krzanich reassured investors that restructuring the company was the best move in the long term, saying: “Second-quarter revenue matched our outlook and profitability was better than we expected In addition, our restructuring initiative to accelerate Intel’s transformation is solidly on track. We are gaining momentum heading into the second half. While we remain cautious on the PC market, we are forecasting growth in 2016 built on strength in datacentres, the internet of things and programmable solutions.”

Intel had previously believed that growth in chip sales for datacentres would make up for slowing PC sales. However, slower than expected growth in datacentres ended up causing the company's share price to drop 3 per cent in after-hours trading. Intel does see the market for datacentre chips picking up in 2016 with the release of new chips designed for enterprise and based on its Broadwell micro-architecture.

If Intel intends for its restructuring to be worthwhile, than its cloud business will have to perform much stronger during the third quarter as will its chips aimed at datacentres.

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