Intel's PC Business Grows in Q4, but Server Chip Sales Still Lag

By Jeff Burt  |  Posted 2014-01-16

Intel's PC Business Grows in Q4, but Server Chip Sales Still Lag

Just as Intel officials began to see a little life in its PC chips business in the most recent financial quarter, sales of its enterprise servers showed more softness than expected.

Like many tech vendors that are closely tied to the ailing global PC space, Intel's financial numbers over the past couple of years have been impacted by the declining sales of desktops and notebooks. However, in the fourth quarter of 2013, the giant chip maker saw revenues of its PC Client Group grow 2 percent over the previous quarter, and remain flat over the same period last year.

The PC desktop business was particularly strong, according to CEO Brian Krzanich, with quarterly revenues growing 11 percent. In addition, the company saw record shipments of systems powered by Intel's Core i5 and i7 chips during the quarter. Much of the bump in desktops was in corporate systems, which was in part due to the migration of companies from Microsoft's aged Windows XP operating system to Windows 7 or 8, Krzanich said during a Jan. 16 conference call with analysts and journalists to discuss the financial numbers.

He also said the new form factors hitting the market—such as all-in-one and 2-in-1 systems, which can be used as both a notebook and a tablet—has helped boost the PC numbers. Intel has been a strong proponent of such form factors as a way to rejuvenate the PC market, pushing both its Core "Haswell" chips and low-power Atom platform for such systems.

"That really … has to do with a lot of great form factors that are coming in the all-in-ones, the great innovation that’s coming in there," Krzanich said. "We saw some of the highest units of i5 and i7 in the enthusiast area. I think those are some great gaming platforms. So we think there is a lot more to the desktop growth. We also introduced the Haswell-based NUC [Next Unit of Computing], which is a smallest form factor desktop machine that you can have. So it’s those kinds of innovations that are driving this desktop growth as much and more than the software transition."

For the year, the PC Client Group saw revenues of $33 billion, down 4 percent from 2012. IDC analysts last month projected that PC shipments worldwide will fall by 10.1 percent in 2013, with consumers and business users alike spending more of their money on tablets and smartphones.

"While the PC market was down on the year, we saw the market stabilize in the back half of the year, with fourth-quarter PC units up from a year ago," Chief Financial Officer Stacy Smith said. "Additionally, we saw strong tablet growth in the back half of the year and inclusive of PC and tablets our unit growth in the fourth quarter was up almost 10 percent from a year ago."

Intel officials hope to fuel continued growth in the PC space, noting plans this year to launch the 14-nanometer "Broadwell" processors.

"We are well on our way to reinventing the personal computer," Smith said. "With all-in-ones, 2-in-1s, convertibles and detachables, the amount of innovation in the PC market is unprecedented. Building on this leadership, we will start production of wafers on Broadwell, a 14-nanometer product targeting these form factors, in the first quarter. In the tablet market, we launched the Bay Trail SoC [system-on-a-chip] and have started to expand our footprint and market signature in this growing market."

Intel's PC Business Grows in Q4, but Server Chip Sales Still Lag

Meanwhile, Intel's Data Center Group saw fourth-quarter revenues jump 8 percent over the same period last year, and 7 percent for all of 2013. Cloud computing revenues grew 35 percent, storage 24 percent and high-performance computing (HPC) 18 percent, Krzanich said.

However, the enterprise business—including chips for data center servers—produced little to no growth over the first three quarters last year and continued to struggle in the fourth quarter. Revenues grew 8 percent, though shipments increased only 1 percent.

Krzanich and Stacy noted that they had expected the enterprise business to grow faster in the fourth quarter after a fairly strong Q3, but that never materialized. They placed part of the blame on the partial government shutdown in October and the inability last year of Congress to reach any sort of budget accord. Smith said Intel expects the enterprise business to fare better this year.

"[In] the first half of the year, we saw an enterprise market that was declining and [as] we got into the back half of the year, it was growing," he said. "It was just growing a little less fast than we thought [in the fourth quarter] and the recovery was a little less fast than we thought. My expectation is we will see that segment kind of pop back to the normal rate. I would also think that we were just a bit ahead of ourselves in terms of how fast the enterprise market was going to recover and grow, so we have a little bit more of a cautious view of that as we progressed through 2014."

He and Krzanich noted the refresh of the Xeon E3 and E5 server chips last year, and the introduction of the Atom C2000 chips for low-power servers. In addition, the company this quarter will release the latest generation of its high-end Xeon E7 processors.

In a report in December, TheInfoPro analysts said spending on IT infrastructure—particularly servers—will slow over the next two years. Enterprises that had gone on a spending spree on x86-based servers and other hardware to get their infrastructures ready for virtualization have largely completed the job, and are turning their focus now to software. In addition, more virtualization means fewer servers, Peter ffoulkes, research director for servers and virtualization at TheInfoPro, told eWEEK.

Krzanich was asked during the Jan. 16 conference call whether the virtualization curve was done, which would impact servers sales in the future.

"I think we would say there is some impact," the CEO said. "To answer, we are showing a kind of long-term growth rate in enterprise that’s less than what it was three years ago. I think as you said there was some impact associated with the virtualization curve having played out, but that doesn’t stop the fact that we think that there is growth in the enterprise segment. We have just changed our view for 2014. We think the recovery just plays out a bit slower than we would have thought a quarter ago."

Overall, Intel saw revenues in the fourth quarter hit $13.8 billion, up 3 percent over the same period in 2012, and income reach $2.6 billion, a 6 percent increase. For the year, revenues fell 1 percent, to $52.7 billion, and income decreased 13 percent, to $9.6 billion.

For the first quarter, Intel officials said they expect revenues to come in at about $12.8 billion, with revenues for the whole year being flat.

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