Intel Corporation (NASDAQ:INTC) CFO Stacey Smith gave few details on how well its phone business was doing saying, “we had a good first quarter in our baseband business.” The company just launched LTE versions this quarter, a segment where Qualcomm controls 86% of the market.
QUALCOMM, Inc. (NASDAQ:QCOM) is looking to further expand its market share of baseband chips through strategic partnerships. It’s LTE chips are found in Samsung’s Galaxy S4, HTC’s One, and Apple Inc. (NASDAQ:AAPL)’s iPhone 5. Already on its 3rd generation of LTE chips, Qualcomm has an expertise advantage over Intel. Capturing market share going forward will likely prove difficult for Intel without strategic partnerships in mobile.
Margin
Gross margin was down 2 points from expectations at 56%. Management expects it to bounce back to 58% this quarter and 60% for the year.
The culprit was increased demand for Haswell chips before the company is able to sell them (which bodes well for Ultrabook sales). As a result, production costs increased while there was no benefit to revenues. It expects to get back the inventory writeoff throughout the rest of the year once Haswell qualifies for sale.
I wouldn’t be surprised by an uptick in margin next quarter, but maintaining a 60% gross margin for the year is quite ambitious. With the precipitous fall in the PC market, and the pricing pressure on Ultrabooks that the company is putting on itself, margins will be hard to maintain.
Capital Expenditures
Intel Corporation (NASDAQ:INTC)’s capital expenditures have more than doubled since 2011 as the company works to catch up with its competitors in mobile. As the PC market declined faster than expected last quarter, the company saw “higher than expected excess capacity charges in older generation process technologies.”
The company took the opportunity to take capacity offline and reuse the equipment for its ramp up in 14 nm processes. The result is a savings in Cap-Ex of $1 billion for the year, bringing the total down to $12 billion. This is still significantly higher than in the past, but it shows a more cost conscious management.
Outlook
Intel Corporation (NASDAQ:INTC)’s outlook is extremely optimistic and quite ambitious in my opinion. While I feel the chipmaker has great long-term prospects, particularly with its next generation of high-efficiency chips, I think it will have problems meeting its short-term forecasts.
Ultrabooks provide a great opportunity for reverse cannibalization of the tablet market, and if wearable computing proves popular, Intel may find itself in more mobile products. The company’s technological capabilities are well ahead of the competitions’. Intel just needs to convince manufacturers to use it.
The article Key Takeaways From Intel’s Earnings Call originally appeared on Fool.com and is written by Adam Levy.
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