With the desktop PC market in terminal decline, chip maker Intel (NASDAQ:INTC) is increasingly looking to its data center business to generate growth.
Unfortunately for the tech colossus, the data center business is not growing as fast as it had hoped, thanks to weak macroeconomic conditions making purchasing managers reluctant to order new kit.
Having previously indicated it expected its data center division to achieve growth of around 15% in the current year, the company said in its third quarter results released after the bell on Tuesday that it now expects the growth rate would be in the "low double digits".
The company, known as Chipzilla because of its ability to lay waste to rivals, was trading at US$31.35 in pre-market trading on Wednesday, having closed at US$32.04 on Tuesday night.
The fall was not as severe as it might have been as third quarter numbers had topped expectations.
Revenue of US$14.47bn may have been down from US$14.55bn in the third quarter of last year, but was ahead of the US$14.22bn median forecast of analysts that cover the stock.
Post-tax profit of US$3.11bn was down from US$3.32bn the year before.
Earnings per share, at 64 cents, surpassed the market's expectations of 59 cents, but were down seven cents on a year earlier.
"INTC stock has historically correlated with its GM [gross margin], and we think GM will expand toward 70% over the next two years driven primarily from its manufacturing leadership," said broker Jefferies, as it upped its gross margin forecasts, full year earnings estimate and price target.
The broker's new price target of US$37 assumes an earnings multiple of 15 times its 2016 earnings per share forecast of US$2.46.
The broker reiterated its 'buy' recommendation.
Canaccord Genuity is also a buyer but left its price target unchanged at US$39.
"Overall, we maintain our bullish view on improving Intel fundamentals highlighted by an increasing mix of revenue and profit driven outside of the PC market.
"We remain confident in our long-term thesis centered on margin accretive DCG growth, a sharp additional cut in Mobile losses in 2016, solid IoT [Internet of Things] growth, and prudent management of the secular PC market decline," the broker said.