Intel Sees PCs Stabilize, but Mobile Business Still an Issue

By Jeffrey Burt  |  Posted 2014-04-15

Intel Sees PCs Stabilize, but Mobile Business Still an Issue

Intel officials saw some good news in the first three months of the year—its PC business began to stabilize, the data center group continued to show strong gains and its new Internet of things business unit, while small, had strong revenue gains.

However, Intel officials had a mixed bag when it comes to the important mobile chip business. The chip maker's Mobile and Communications Group—which includes silicon for smartphones and tablets—generated revenue of $156 million, a 61 percent drop over the same period in 2013, though part of that could be attributable to the new way Intel is reporting its financial numbers.

At the same time, CEO Brian Krzanich said 5 million tablets powered by Intel processors were shipped in the first quarter and that Intel is on pace to hit its goal of 40 million Intel-based tablets shipping by the end of the year. Last year, 10 million Intel-powered tablets shipped, Krzanich said.

The result of all this was a quarter in which the world's largest chip maker made $1.9 billion on revenue of $12.8 billion, the company reported April 15. The net income was down 5 percent over the same period last year, while revenue was up slightly from the $12.6 billion in the first quarter of 2013.

The company expects revenue for the second quarter to hit about $13 billion, a 2 percent increase over the first three months.

Intel still gets the bulk of its revenue—$7.9 billion in the first quarter—from its PC Client Group, which has been troublesome for the company over the past few years, as PC sales worldwide have continued to tumble due to the growing popularity of tablets and smartphones. However, the first-quarter revenue numbers for the PC business were down only 1 percent.

Krzanich and CFO Stacy Smith said Microsoft ending support for the creaky Windows XP operating system helped force businesses and consumers to refresh their systems—a move that analysts with Gartner and IDC both cited as helping slow the decline of the PC market in the first quarter—though the CEO said there also were other factors. Those include new form factors being pushed by Intel and OEMs, such as 2-in-1 convertible systems, falling prices of new systems and an aging PC installed base.

"So it's a combination of factors that's really driving the stabilization" of the PC market, Krzanich said.

It's been the contraction of the PC market that has driven Intel and other tech vendors to pursue other growth markets. Intel officials hit a lot of those topics—from mobile devices to the Internet of things (IoT)—earlier this month at their Intel Developer Forum in China.

"This is our strategy in action," he said in a conference call with journalists and analysts to discuss the financial numbers. "If it computes, it runs best on the Intel Architecture."

During the April 15 call, Krzanich and Smith noted gains in some of these other areas, such as Intel's new IoT business unit, which saw revenue jump 32 percent over the first quarter of last year. However, right now it has a marginal impact on Intel's bottom line, with revenue reaching $482 million. Officials expect that to grow, fueled by the company's new small, low-power Quark processors, designed for the IoT and wearable devices.

Intel Sees PCs Stabilize, but Mobile Business Still an Issue

The Data Center Group, which officials had said had underperformed in some areas last year, saw revenue gains of 11 percent, hitting $3.1 billion, due in part by the vendor's ability to sell chips into servers used in cloud and hyperscale environments. Officials earlier this year said they expected the data center business to rebound this year as the global economy improved and organizations began embracing Intel's Xeon server chip portfolio, which was refreshed in 2013 and earlier this year.

However, it's the mobile chip space—dominated by systems-on-a-chip (SoCs) designed by ARM and made by various manufacturing partners, including Qualcomm, the top mobile chip maker—that Intel has been focusing much of its efforts in over the past several years. The company has been improving the performance of its chips while driving down their power consumption in hopes of challenging ARM in the all-important market.

The company's processors support not only Windows, but also Google's Android and Chrome operating systems, and this year Intel is on track to launch 14-nanometer mobile chips, like the Atom "Braswell" SoC for PCs and convertible systems, and "Cherry Trail" for tablets. Both will succeed current 22nm "Bay Trail" chips.

"Intel must pick up the pace for its tablet sales to successfully achieve this goal and its next Atom chip, Cherry Trail, which will succeed the firm's Bay Trail chip when it becomes available in 2H14, will be a critical part of this strategy," Stephen Belanger, an analyst with Technology Business Research, said in a research note. "Cherry Trail will be used in tablets and low-end PCs, and the chip's 14 nm manufacturing process will provide faster processing and improved battery life than the 22 nm Bay Trail chip. … The release of Cherry Trail will not make Bay Trail obsolete, as Intel will leverage both chips to cover all spectrums of the tablet market. Cherry Trail will be marketed in high-end devices and Bay Trail delivered in the low-end."

Intel also is looking to expand its cellular chip portfolio, as it looks to grow sales of its new XMM 7260 4G Long-Term Evolution (LTE) platform—which the company unveiled at the Mobile World Congress 2014 show in February—while drawing down its inventory of 3G chips.

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