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Intel Posts Q1 Results in Line With Diminished Expectations

The chipmaker hit its lowered sales target, but it could have been worse.

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Shares of Intel rose by about 3 percent after the company posted Q1 results that were in line with expectations lowered by the company’s warning last month.

Intel reported per-share earnings of 41 cents on sales of $12.8 billion. Analysts surveyed by Thomson Reuters had expected earnings of 40 cents a share on sales of $12.9 billion. Gross margin, a closely watched metric indicating profitability, was 60.5 percent. Sales were flat from the same period a year ago, gross margins improved from 59.6 percent a year ago.

For the second quarter, Intel said it expects revenue of $13.2 billion plus or minus $500 million and a gross margin of 62 percent, give or take a couple of points. That sales guidance is lower than the $13.5 billion that analysts expected. For the year, it expects revenue to remain flat relative to the $55.9 billion it posted in 2014.

First-quarter sales fell by 8 percent year-on-year to $7.4 billion in the Client Computing Group, Intel’s business unit devoted to selling chips to PC makers. Sales in the Data Center Group, which primarily sells to companies building servers, rose 19 percent to $3.7 billion. Sales in the smaller Internet of Things unit rose 11 percent year-on-year, and software sales fell 3 percent.

Sales of chips to PC makers accounted for 62 percent of Intel’s revenue last year. And while the market showed signs of recovery at the end of 2014 after posting its biggest year-on-year decline ever, research firms Gartner and IDC last week reported further declines in the first quarter.

During a conference call with analysts, CEO Brian Krzanich said Intel expects Microsoft’s release of Windows 10 this summer to cause PC makers to start building up their inventory of chips ahead of expected sales in the second half of the year.

That benefit he said, might be offset by costs associated with a forthcoming shift in Intel’s manufacturing. It is currently ramping down the use of factories running its older 22-nanometer process in favor of its 14-nanometer process. That shift is “ahead of schedule” CFO Stacy Smith said on the call.

Later in an interview with Re/code Smith the timing of the Windows 10 release “sets up a good demand picture,” and would consist mostly of demand that slightly higher than what it would normally see in the second half of the year. Newer chips will lead to PCs that require no fans to cool them, will boost their security capabilities, and bring wireless charging he said.

Both Krzanich and Smith declined to answer questions from analysts about reports that Intel has been in talks to acquire chipmaker Altera.

This article originally appeared on Recode.net.