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Apple Inc. (AAPL) Will Shun Intel Corporation (INTC)

Apple Inc. (NASDAQ:INTC)’s recent earnings announcement was a disappointment, but not by much. The company was able to generate results that were not as bad as anticipated. Analysts, on a consensus basis, were anticipating earnings per share of $0.41. The company reported earnings per share at $0.40.

Apple Inc. (NASDAQ:INTC)

Data centers are where it is at

On the bright side, the data center segment has been able to grow revenues by 7.5% year over year. The year over year growth is not a surprise as industry experts anticipate growth in cloud computing. Cloud computing players like VMware, Inc. (NYSE:VMW) have been able to grow earnings by 30% on average over the past five years and  believes that cloud computing will be a $210 billion industry by 2016 and that 74% of business applications will be in the cloud by 2017. International Business Machines Corp. (NYSE:IBM) has been able to stake a large claim in business software in the cloud, along with cloud based solutions. International Business Machines Corp. (NYSE:IBM) should be a closely watched bellwether for server growth, and whether or not Intel’s data center segment will be able to sustain growth.

Desktop computers are fading into the background

Intel’s PC client group revenues declined by 6.6% over the previous fiscal year. Revenues from laptops and desktop computers have both been declining, due to longer upgrade cycles. Consumers feel less compelled to upgrade their desktop computers because the benefits of a faster processor and better operating system (Windows 8) are diminishing.

Product obsolescence due to product failures may prompt customers to buy another computer. But durability, along with increasing usage of the Internet for access to applications is going to diminish the need for faster-computing over the short-term. This should cause Intel’s earnings to decline for a prolonged period in the PC client group. A potential earning catalyst going forward is the product road map that Intel has laid out for itself in mobile computing. But, QUALCOMM, Inc. (NASDAQ:QCOM)’s near dominant market share keeps me a cautious skeptic of Intel’s advances into mobile processing.

Intel was hoping that mobile would bail it out

Intel’s architecture segment reported revenue declines of 3.9%. The decline in revenues in this segment is somewhat alarming because its product portfolio is composed of processors for tablet, mobile phones, and netbooks. Analysts are hoping for a rapid deployment of Intel processors in the mobile space, but I would hold my breath as there are already well-established competitors in the space that Intel wants to compete in. Intel may have some of the world’s most talented engineers along with a large stack of patents, but that doesn’t change the fact that ARM Holdings plc (ADR) (NASDAQ:ARMH), QUALCOMM, Inc. (NASDAQ:QCOM), and Samsung Electronics Co., Ltd. (KRX:005930) have been developing chips for smaller devices for much longer. Intel also faces stiff competition from NVIDIA Corporation (NASDAQ:NVDA) as well, while Advanced Micro Devices, Inc. (NYSE:AMD) is absent from the mobile space. In fact, AMD is minding its own business developing processors for the next-generation console systems.

Is Intel’s distribution channel a disaster?

Intel was relying heavily upon the success of Microsoft Corporation (NASDAQ:MSFT), and Microsoft’s Surface. Microsoft’s Surface is uninspiring. It’s just a Windows 8 laptop with a smaller screen and an Intel processor thrown in. What made the iPad stand out was the concept behind Apple Inc. (NASDAQ:AAPL)‘s marketing push. Consumers want a bit of novelty with their consumer electronics purchase, and Microsoft doesn’t actually provide any of it.

The tablet is a consumer electronics device aimed at satisfying basic entertainment needs which may involve reading a book, listening to music, and watching YouTube videos. Perhaps answer the occasional e-mail. What Microsoft’s Surface tries to appeal to is the office crowd — it’s like the Blackberry of tablet devices.

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