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Intel Corp. set the cat among the pigeons today after providing a weaker-than-expected full-year revenue forecast that sent investors scrambling for an exit

The chipmaker’s stock fell more than 7% in the after-hours trading session despite what was nominally a good quarter for Intel. The company reported a profit before certain costs such as stock compensation of 89 cents per share on revenue of $16.06 billion. That was above the analysts’ average forecast of an 87-cent profit on revenue of $16.02 billion.

But deeper analysis shows that all is not well with Intel. Crucially, its data center group revenue came up short of expectations. The unit reported revenue of $4.9 billion, down 6.3% from the same period one year ago and some distance short of Wall Street’s $5.1 billion revenue forecast.

Update: Shares fell 9.5% on Friday.

Intel’s data center group has become increasingly important in recent years, spearheading the company’s growth at a time when its other key business, which involves selling chips for personal computers, has declined because of slowing PC sales. Now, though, demand for data center chips is also falling, thanks to what Intel describes as “weakness” in China, one of its biggest markets.

Intel said China was consuming fewer microchips this year because customers there are still working through stockpiles of silicon bought in 2018. In an interview with Reuters, Intel Chief Executive Officer Bob Swan (pictured) said Chinese firms had purchased extra data center chips last year on fears of tariffs or supply constraints amid that country’s ongoing trade dispute with the U.S.

“The belief at the time was that they were ordering well ahead of what their real needs were, but the expectation was that they would consume that over the course of Q4 and Q1,” Swan said. “But today we think … it’s not being consumed quite at that level; there’s going to be another quarter.”

As a result, Intel is forecasting full-year revenue of just $69 billion, below estimates of $71.05 billion. If that forecast proves correct, 2019 will mark Intel’s first revenue decline since 2015.

“The data center rebound the company was banking on for back-half improvements doesn’t look like it’s going to happen,” analyst Patrick Moorhead of Moor Insights & Strategy told SiliconANGLE.

The lower forecast is seen as all the more harmful because Intel looks like it’s going to be increasingly reliant on its data center business after saying last week it will exit the market for 5G modems for smartphones. Intel came to that decision after saying it saw “no clear path to profitability.”

The real reason, however, was probably Apple Inc.’s and Qualcomm Technologies Inc.’s decision to kiss and make up following years of bickering over patent royalties. Apple, which had originally planned to use Intel modems for its first 5G iPhones, is now looking to go back to Qualcomm instead.

“Coming on the heels of the ‘Kumbaya’ moment Apple/Qualcomm shared, which also shattered Intel’s 5G handset hopes, this is obviously not the news investors were hoping for,” said Charles King, an analyst with Pund-IT Inc. “Especially concerning was the weakness Intel’s data center group betrayed. That’s been the engine driving the rest of the company train for the past few quarters, sparked by IT build outs in China.”

Investors’ fears were heightened more when Intel officials said they’re also “conducting a strategic assessment of 5G modems for the PC and IoT sectors.”

“The big question is what Intel ‘s growth engines of the future will be, as many of the growth initiatives have stalled or been canceled,” said Holger Mueller, principal analyst and vice president at Constellation Research Inc. “Most recently it’s foray into 5G with apple faltered, so pressure is on management to find new growth opportunities as soon as possible.”

Another, separate problem for Intel is its PC business. There, the company has been struggling to manufacture enough chips to meet demand. Still, the division saw revenue grow by 4% in the quarter thanks to strong sales of its gaming and other high-performance products.

King said Intel will likely be able to ride out the current headwinds, though he said it could do itself a big favor by showing that its pledge to be the silicon provider of choice for 5G data centers is more than wishful thinking.

“Some solid wins and alliances there, as well as demand for its new-generation chips, should help put this quarter’s bad news in the rear view mirror,” King said. “The sooner that happens, the better for both Intel and its shareholders.”

Photo: 360 El Salvador/Flickr