Intel Corporation (INTC): A Marathon, Not a Sprint for This Tech Giant

Page 1 of 2

Intel Corporation (INTC)Intel Corporation (NASDAQ:INTC) is a company that took too long to see the trends unfolding before it. Dominant in both the PC and server markets, Intel ignored the mobile market for far too long, letting companies like QUALCOMM, Inc. (NASDAQ:QCOM) take advantage. Now, with the PC market in decline, Intel Corporation (NASDAQ:INTC) is pushing hard to make sure that more and more mobile devices have Intel Inside. Progress, however, is slow.

Intel largely met analyst estimates when it announced earnings last Wednesday, posting revenue of $12.8 billion and net income of $2 billion for an EPS of $0.39. What caused concern was the company’s revised guidance for the full year, reducing an expected singe-digit percentage revenue increase to flat revenue year-over-year. Along with this revision Intel Corporation (NASDAQ:INTC) cut its capital spending budget for the second time this year, reducing it by $1 billion to $11 billion for the full year.

The market reacted poorly, sending Intel shares lower on the news. Intel is now down a little over 5% from before the announcement, adding to losses incurred when the stock was recently downgraded. Is the market right to be pessimistic? Or is it ignoring the big picture?

A company in transition

Intel Corporation (NASDAQ:INTC) split itself into five different groups in its earnings report:

  1. PC Client Group – The bulk of Intel’s business, this group is responsible for notebook and desktop platforms, as well as connectivity products.
  2. Data Center Group – Delivers platforms for server, workstation, and storage computing market segments. This is the second biggest division.
  3. Other Intel Architecture Group – This vaguely named division is responsible for platforms for tablets, phones, and netbooks, as well as other mobile phone components.
  4. Software and Services Group – Software which supports the Intel platform as well as subsidiaries like McAfee.
  5. All Other – Anything that doesn’t fit into the above categories, including NAND flash memory products.

Of the $12.8 billion of revenue for the quarter, 63% comes from the PC client group and 21% comes from the data center group, leaving only about 16% for all of the other divisions. Clearly Intel Corporation (NASDAQ:INTC) is still seriously dependent on the PC and server markets. The other three groups reported an operating loss for the quarter totaling $1.2 billion, while the PC client and data center group posted a cumulative operating income of $3.9 billion.

Intel’s core businesses are still making plenty of money, although the PC business is in decline as the market weakens. If you exclude the unprofitable groups Intel’s net income would have been about $2.9 billion instead of just $2 billion.

Intel Corporation (NASDAQ:INTC) is spending heavily, developing products that will be competitive in the mobile market, but the company was far enough behind that this transition will take time. How did this happen? Well, Intel has been fighting a different war for years.

More power!

Before smartphones and tablets Intel staked out its dominance in the PC market by battling Advanced Micro Devices, Inc. (NYSE:AMD). For a long time desktops were the main form factor, and Intel Corporation (NASDAQ:INTC) focused on making their processors as powerful as possible. There was no focus on energy efficiency at all, as both companies tried to outdo one another and create the most powerful processor. Laptops didn’t change this dynamic too much, as Intel continued to focus on speed.

When mobile devices like smartphones and tablets started to become popular Intel Corporation (NASDAQ:INTC) didn’t have any products that were energy efficient enough to run them for an acceptable length of time on a battery. A powerful tablet that only lasts an hour on battery isn’t much use to anyone. Because of this, mobile devices used processors based on the ARM architecture instead of Intel’s x86 architecture.

Now, there’s nothing inherently more energy efficient about ARM compared to x86, it’s simply a matter of Intel not trying to make its chips energy efficient. That was never the focus. So when smartphone and tablet sales exploded Intel Corporation (NASDAQ:INTC) had nothing to offer. The company had to go back to the drawing board, and during this time sales of ARM-based chips went through the roof.

Advanced Micro Devices, Inc. (NYSE:AMD), I think, is in serious trouble. The company is number two in a declining market and doesn’t have anywhere near the resources of Intel to push its way into the mobile market. After battling Intel for years and losing, the company is in poor position to capitalize on the shift to mobile. AMD reported its earnings last week, posting a revenue decline of 18% year-over-year and a net loss of $74 million. Shares took a dive, falling by 13% the following day. Last year Advanced Micro Devices, Inc. (NYSE:AMD) posted a net loss in excess of $1 billion.

A big step

When Intel Corporation (NASDAQ:INTC) released the newest iteration of its Core line of processors in June, dubbed Haswell, the focus was for the first time energy efficiency. Intel claimed that the mobile versions of the chips, aimed mainly at ultrabooks and hybrid devices, would increase battery life by up to 50% over previous generations while offering better graphics to boot.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!