Intel has reported a huge drop in data center chip sales and a steep decline in gross profit margin, a sign it’s losing market share to rivals and customers who are designing their components. Intel shares were down 3% in after-hours trading after the results.

The company’s Data Center Group (DCG) has generated first-quarter 2021 sales of $5.6 billion, down 20% from a year earlier and below Wall Street estimates. This is one of Intel’s most profitable businesses, so the lower revenue hurt the overall margins.

In the fourth quarter of 2020, Intel's DCG revenue amounted to approximately $6.09 billion, a decrease of 15% from the figure reported for the same quarter of 2019.

Intel said sales of chips to cloud computing service providers fell 29% from the same period a year earlier. That big drop, according to Intel, was caused by “digestion” customers pausing orders while they work through unused stockpiles of chips.

Demand for cloud computing services from data centers has surged during the pandemic as many businesses shifted to working from home.

“This is a pivotal year for Intel. We are setting our strategic foundation and investing to accelerate our trajectory and capitalize on the explosive growth in semiconductors that power our increasingly digital world,” said Pat Gelsinger, Intel CEO.