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Intel is continuing to rely more on its data center business and other newer product segments to help offset the continued sales declines in its PC processor unit.
However, even the Data Center Group—which saw revenues hit $4.1 billion in the third quarter, a 12 percent jump over the same period last year—had continued weakness in the enterprise segment, though that was offset to some degree by growth in the cloud business.
What the quarterly financial numbers show is a company that is adapting to the rapid changes that are roiling much of the tech industry, with the growing importance of not only the cloud business, but other areas such as memory and the Internet of things (IoT). For a business whose history has been so tightly coupled to the PC market, these other segments now account for about 40 percent of Intel revenues, according to CEO Brian Krzanich.
Overall, Intel in the third quarter generated $14.5 billion in revenue –about flat year-over-year—and a net income of $4.2 billion, a 6 percent drop. The Client Computing Group—which includes PCs as well as mobile devices like smartphones and tablets—saw revenue drop 7 percent year-to-year, to $8.5 billion. Revenue for the IoT Group rose 10 percent over the same period last year to $581 million, while revenue growth was flat for the software and services business, with sales hitting $556 million.
Though PC shipments continue to decline globally—in the last quarter by 7.7 percent to 10.8 percent, according to analysts with Gartner and IDC—Krzanich said he was optimistic about the future of the PC business driven by Microsoft’s new Windows 10 operating system and Intel’s new sixth generation Core “Skylake” processors.
“Despite ongoing macroeconomic headwinds, there are signs that the PC market is beginning to stabilize,” he said during a conference call Oct. 13 with analysts and journalists to talk about the quarterly numbers.
Krzanich added that there are more than 50 Skylake-powered systems on the market now, and that will triple by the end of the year. However, it will be next year before sales of systems ramp, he said.
Stephen Belanger, an analyst with Technology Business Research, agreed that the combination of Windows 10 and Skylake chips will help spur sales, but he is unsure whether it will be enough to reverse the decline in Intel’s PC chip sales.
“With Skylake, Intel is attempting to rekindle device demand by enabling thinner, lighter and more power-efficient form factors,” Belanger wrote in a research note. “However, obstacles in user familiarity with Windows 10 and longer device life cycles will remain through 2016, muting the impact of Intel’s new chipset to its overall PC revenue performance.”
In the mobile space, Krzanich said the company was on track to hit its goal of an $800 million improvement in profitability, noting that the company is already 75 percent there.
The Data Center Group continues to be the engine driving much of Intel’s revenues, and it goes beyond servers in enterprise, according to Krzanich. The company continues to invest in a range of areas such as networking, cloud computing and memory, with the CEO pointing to the 3D XPoint nonvolatile memory chips developed in conjunction with Micron. The technology, which will start shipping next year, will be up to 1,000 times faster than NAND and up to 10 times denser than conventional memories, including DRAMs, Krzanich said.
“This enables memory and sense of applications to be performed at much faster rates and much lower costs, opening up entirely new opportunities,” he said.
Intel Growth Fueled by Data Center Business
Despite the strong showing of the Data Center Group, Intel executives slightly lowered the fourth-quarter forecast for the business as cloud-based companies reduce their orders.
“Cloud enterprises tend not to do large purchases in the fourth quarter,” Krzanich said, adding that while they have in the past, “in general they don’t because the fourth quarter is their selling season so they don’t want to disrupt their systems during the quarter.”
An analyst asked Krzanich about the possible threat posed by ARM-based chip makers in cloud environments. Most recently, Qualcomm earlier this month announced it has begun sampling its first server chips with businesses and demonstrated a pre-production version of a 24-core system-on-a-chip (SoC). The CEO said that Intel’s history has been about dealing with competitors.
“Our goal is always to continuously push the product performance, and the way we think about it is … what does it take to replace ourselves even, in this market, especially the data center,” he said. “There will always be competitors, and our goal is to just consistently outperform [them], and there will be new entrants and old entrants all along, trying to win share away from us. That’s going to be a norm.”