Intel Revenue Flat, But Server Chips Sales Grow

The PC market is continuing to impact Intel’s financial numbers, but executives are optimistic new chips will boost future sales.

Intel officials over the past few months have released a slew of new chips for everything from tablets to traditional PCs to servers. Now they’re expecting those new chips to pay off.

In a third quarter that saw flat revenues and profits when compared with the same period in 2012, the giant chip maker saw some revenue gains in the data center with its server processors, while the contracting global PC market continued to take its toll. At the same time, other segments of its Intel Architecture business—including the low-power Atom platform—saw revenues drop 9.3 percent.

CEO Brian Krzanich, on a conference call with analysts and journalists to discuss the numbers, said Intel experienced “modest growth in a tough environment.”

Revenues for the quarter came in at $13.5 billion, about the same as the third quarter last year. Intel made about $3 billion in profit, again about the same as last year. The Data Center Group, which consists primarily of chips for servers, saw sales grow to $2.9 billion, a 12.2 percent year-to-year increase, while revenues for the PC Client Group fell 3.5 percent.

However, Krzanich noted that PC sales in mature markets like the United States and Europe seem to be stabilizing, and that corporate sales in the quarter were good. That view echoed what analysts at IDC and Gartner reported earlier this month, who reported a small bump in corporate shipments while those in the consumer field continue to drop as they increasingly spend more of their money on tablets and smartphones.

Intel will continue to rely on its data center business as it pushes its way into the mobile market, according to Stephen Belanger, an analyst with Technology Business Research (TBR). Intel is still catching up with rivals such as Qualcomm and Nvidia, who leverage the ARM architecture, Belanger wrote in a research note.

Krzanich and CFO Stacy Smith, while acknowledging the challenges Intel is facing, are touting the raft of new processors that the company has introduced over the past several months.

“We are executing on our strategy to offer an increasingly broad and diverse product portfolio,” Krzanich said.

Those include new Xeons for servers as well as new Atom chips for low-power microservers, another area for the growing Intel-ARM competition. At the Intel Developer Forum in September, Krzanich also introduced a new family of Quark chips aimed the embedded market and wearable devices.

However, the mobile market is one that Krzanich is really focusing on, admitting when he took over the CEO job in May that Intel misread the market over the past few years. It’s a market that values power-efficiency and price, and Krzanich is confident Intel is making significant progress in that direction.

Over the past few months, Intel has introduced new Core “Haswell” processors for PCs that can run Windows, Mac OS and Google’s Chrome. The Haswell chips offer greater performance and 50 percent better energy efficiency, and will start appearing in systems that will be priced as low as $299, he said.

The new 22-nanometer Atom Z3000 “Bay Trail” systems-on-a-chip (SoCs) will appear not only in tablets (as low as $99), but also PCs and new form factors, including 2-in-1 convertibles that can be used as both traditional notebooks and tablets (as low as $349).

Krzanich said there already more than 50 design wins based on Bay Trail, though Smith noted that only eight to 10 of those designs will be on shelves during the holiday season.

TBR analyst Belanger wrote that he expects the Bay Trail and Haswell chips to gain traction in the fourth quarter and first half of next year, “but uncertain demand for Windows 8.1 convertibles and limited usage of Intel’s chips in Android devices will continue to hurt its mobile device market share. Intel’s x86 data center chip business will remain the firm’s primary revenue growth driver, while its PC Client Group, which accounted for 62.2% of the company’s revenue in 3Q13, will remain relatively flat.”

One chip that will have to wait until next year to gain traction is the company’s 14-nm “Broadwell” chip, which Krzanich said will be delayed by a quarter. The plan was to being production in the fourth quarter, but it will start in the first quarter of 2014.

The CEO said a “defect density issue” caused the delay, reducing the number of chips that can be used. Krzanich said the problem has been fixed, but the issue pushed production back.

“This happens sometimes in development phases like this,” he said. “That's why we moved it a quarter.”