Intel blames $1B revenue hit on Windows XP's stubborn grip

Intel blames $1B revenue hit on Windows XP's stubborn grip

As small and midsize businesses especially cling to the 13-year-old software, Microsoft and PC makers could suffer as well.

Intel's PC business showed improvement in 2014, but is off to a bumpy start in 2015.James Martin/CNET

Intel has slashed its quarterly revenue outlook by nearly $1 billion, as business customers are proving reluctant to upgrade from Windows XP -- a popular but now 13-year-old operating system.

The company said Thursday it now expects to post $12.8 billion in first-quarter sales, down from its mid-January expectation of $13.7 billion, which was already slightly below Wall Street expectations.

"This happens occasionally and we're transparent about changes to our financial outlook," Intel spokeswoman Cara Walker said Thursday. "What hasn't changed is Intel's strategy and our focus on executing to it."

Intel's shares sank 4 percent to $31 following the outlook cut. Rival PC chipmaker AMD's shares also fell about 4 percent, while Microsoft's shares slipped 2 percent.

Intel, whose chips power most desktops and laptops worldwide, said lighter PC sales stemmed especially from weaker-than-expected demand to upgrade from Windows XP from small and medium-size businesses, as well as broader economic issues, such as a weaker euro. Microsoft last year ended technical support for Windows XP, which has helped push more businesses and consumers to upgrade to newer machines.

So far, ending support for XP has helped cut back interest in the operating system. Windows XP's global share of the desktop and tablet operating-system market fell to 11 percent last month, from 17 percent a year earlier, according to researcher StatCounter. Windows 7 remains the most popular operating system, grabbing nearly 50 percent of the market.

A lack of interest to move on from Windows XP could spell trouble not only for Intel, the world's biggest chipmaker, but also Microsoft, as it promotes its newest operating system, Windows 10, which comes out later this year. PC makers, such as Lenovo, Acer and HP, would also suffer from slower refreshes from Windows XP.

For consumers and businesses alike, a lack of interest in leaving that operating system would open them to greater security risks and viruses, Microsoft claims.

On a positive note, Intel said its data center business, which has become a major profit engine, is meeting quarterly expectations. Several other estimates were withdrawn and will be updated with the company's quarterly earnings report on April 14.

Intel wrapped up 2014 on a strong note. Its data center group experiencing substantial growth, and itsPC business rose after previously struggling with consumers' migration to smartphones and tablets. The PC segment has benefited from the amount of upgrading from Windows XP that has been occurring, as well as more customers going back to buying new laptops and desktops after spending on tablet computers in prior years. However, some analysts expressed concerns that the PC market wasn't experiencing a long-term revival, and instead was simply enjoying a short-term bump.

The chipmaker itself doesn't expect 2015 to be as strong as 2014 in PCs. It's already said it expects PC revenue to be down slightly and shipments to be flat. Oppenheimer analyst Rick Schafer said Thursday in a note to clients that Intel's data center business is likely to remain unchallenged in 2015, but believes PC demand "underwhelms" expectations throughout 2015.

If Intel's PC segment, its biggest revenue driver, were to stutter, it could prove a big challenge for the company. Intel has been taking the profits from its PC and data center businesses to help fund its effort to grow in mobile devices, which so far has resulted in billions of dollars in losses.