Intel has spent a lot of effort and money over the past several years trying to diversify its portfolio by extending its reach into such areas as chips for mobile devices in hopes of reducing its reliance on PCs and servers.
However, it is the PC and data center businesses that are driving the chip maker’s financial fortunes, making up for a mobile business that continues to post dismal numbers. According to Intel officials, the third financial quarter was no different.
In the quarter, Intel saw revenues hit $14.6 billion, an 8 percent increase over the same period last year and net income reached $3.3 billion, a 12 percent jump. Sales for the PC Client Group grew 9 percent, to $9.2 billion, while the Data Center Group—which includes processors for servers, networking gear and storage appliances—reached $3.7 billion, a 16 percent increase.
The quarterly financial numbers were strong despite the $1 billion loss in the Mobile and Communications Group, which includes processors for smartphones and tablets. The business lost $810 million in the third quarter of 2013, and revenue in the most recent quarter came in at $1 million, significantly less than the $353 million last year.
Intel officials are looking at a combination of in-house innovation and outside partnerships to help it grow in a market that is dominated by the likes of Qualcomm and other vendors that make systems-on-a-chip (SoCs) based on the ARM architecture.
“From a product standpoint, you saw throughout this year that we did a very good job of as we figure out how to get into this market and work with our customers and partners,” CEO Brian Krzanich said Oct. 14 during a conference call with analysts and journalists, adding that the company is on the right track in mobile despite the harsh numbers from the third quarter.
Some analysts were surprised at the performance of the mobile business, despite what they say are solid products.
“Intel has warned that the group would be a major problem for the next couple of quarters,” Jack Gold, principal analyst with J. Gold Associates, wrote in a research note. “While they have many good things in the pipeline, it’s surprising how low the sales results were. I expect it will take at least 3-4 quarters before Intel can right this group’s ship.”
The chip maker continues to make moves in the mobile space. Krzanich noted that systems powered by a new “Bay Trail” Atom product will start hitting the shelves as the holiday season nears, and the company is still on schedule with its 3G SoFIA offering—an Atom SoC with Intel’s 3G wireless modem—due at the end of the year, and an LTE SoFIA SoC in the first half of 2015. That will be a significant step for Intel; according to Krzanich, 15 percent of notebooks sold in 2018 will be LTE-enabled, and that baseband attached to tablets will double by that year.
Intel Sees Strong Q3 Despite Poor Mobile Numbers
Intel also is partnering with Chinese chip maker Rock Chip, and in September announced it was investing $1.5 billion for a 20 percent stake in Tsinghua Unigroup, a state-owned venture in China that runs Chinese chip designers RDA Microelectronics and Spreadtrum Communications. Intel will leverage these partnerships to help push forward its mobile ambitions.
“This should dramatically increase the use of Intel chips in the mid to lower end of the smartphone and tablet markets,” Gold said.
Krzanich also said the company was on track to hit its goal of selling at least 40 million Intel-based tablets for the year.
Outside of the mobile business, Intel’s quarter was very strong. The company sold a record number of chips for PCs, servers, tablets, phones and Internet of things (IoT) devices, marking the first quarter that Intel had shipped more than 100 million microprocessors. After several years of declining sales worldwide, the global PC market continues to stabilize, due in large part to the commercial space. Krzanich and CFO Stacy Smith said Microsoft’s decision to end support of Windows XP in April contributed to that, though its impact is lessening as the year goes on. Other contributors are businesses replacing their older PCs and new PC form factors that are coming to market, such as two-in-one systems, they said.
In addition, mature markets like North America and Western Europe have seen strong sales, though developing regions have lagged. Consumer PC sales remain stagnant, the executives said.
Gold of J. Gold Associates said he expects the upward PC buying trend among businesses to continue for at least another four to five quarters, though consumers sales will remain flat or slightly up.
“But what this indicates is that the market for PCs is not dead,” he wrote. “Intel’s bet on the new form factors like Ultrabooks and especially 2 in 1 devices is paying dividends. Indeed, while the sale of notebooks is picking up, the trend is downward for tablets, driven largely, in my opinion, by the desire of many users to obtain ‘Nablet’ devices (a combination device that takes the best of the notebook and tablet and combines them, a la the Microsoft Surface, and much like the ‘phablet’ did for phones).”
Krzanich said he continues to expect to be able to grow the data center group revenues by 15 percent, and noted that the Xeon E5-2600 v3 “Grantley” chip—which was introduced in September right before the Intel Developer Forum and targets compute, storage and networking workloads—now accounts for 10 percent of the chips for dual-core systems the company ships.