Intel (NASDAQ:INTC)reported results for the second quarter of 2015 after the market close today, and the tech titan's revenue and earnings exceeded Wall Street's expectations. Investors cheered the news, and as of 5:30 p.m., shares were up 3% in after-hours trading.
Intel's revenue declined 5% year over year to $13.2 billion, matching the company's own guidance and exceeding analysts' estimates of $13.0 billion. Gross margin fell two percentage points to 62.5% -- which was slightly higher than the 62% Intel forecasted -- primarily because of higher costs and lower overall unit volumes.
Intel's lower revenue and gross margin led to a sharp 25% decline in operating income to $2.9 billion. A lower effective tax rate lessened the hit to net income, which fell only 3% to $2.7 billion. Share buybacks further mitigated the impact to earnings per share, which remained flat year over year at $0.55 and ahead of the $0.50 Wall Street was expecting.
Operating segment performance
Drilling down into Intel's segment results, we see that revenue in Intel's Client Computing Group fell 14% year over year to $7.5 billion, as total unit volumes fell 10% and average selling prices declined 3%. Desktop and notebook unit volumes were down 22% and 11%, respectively, giving further evidence of a weakening PC market that could be declining faster than analysts are currently modeling. That said, management is anticipating the upcoming Windows 10 launch to help stem the decline. In addition, tablet sales were a bright spot with unit volumes up 11%.
Helping to offset the declines in the computing group was Intel's Data Center Group, which saw sales rise 10% to $3.9 billion thanks to a 10% increase in unit volumes and a 5% increase in average selling prices. Intel's Internet of Things Group also saw a rise in revenue, increasing 4% to $559 million. Combined, these two segments accounted for more than a third of Intel's total revenue in the second quarter, up from 28% in the year ago quarter.
Looking ahead, management expects third-quarter revenue to rise 8% sequentially to $14.3 billion, and gross margin is projected to be 63%. Both of those figures were above the $14 billion and 61.2% Wall Street was expecting.
For the full year, management lowered its revenue guidance and is now forecasting a decline of 1% compared with 2014, versus its previous expectation of revenue remaining flat year over year. Gross margin, however, is now expected to be 61.5%, up from a previous estimate of 61%.
"Second-quarter results demonstrate the transformation of our business as growth in data center, memory, and IoT accounted for more than 70 percent of our operating profit and helped offset a challenging PC market," said Intel CEO Brian Krzanich in a press release. "We continue to be confident in our growth strategy and are focused on innovation and execution. We expect the launches of Skylake, Microsoft's Windows 10, and new OEM systems will bring excitement to client computing in the second half of 2015."
Joe Tenebruso has no position in any stocks mentioned. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.