10 Things Partners Learned During Intel's Earnings Call
PC Market Dampens Intel's First Quarter
After a first quarter hindered by a sluggish PC market, Intel Tuesday reported earnings in line with revised Wall Street expectations of 41 cents per share on flat sales of $12.8 billion. That compares with 38 cents per share on sales of $12.8 billion in the year ago quarter.
Beyond the company's performance in the first quarter,, Intel CEO Brian Krzanich discussed how Intel's different groups have shaped up over the past few months, and what the Santa Clara, Calif.-based company is expecting in the future.
10. Acquisitions
Several analysts questioned Krzanich on Intel's acquisition strategy, on the heels of reports last month that the chip giant was in talks to acquire field programmable gate array (FPGA) maker Altera.
The CEO, however, refused to comment on potential acquisitions. "We're not going to speculate on actual M&A questions ... we’re not going to speculate on hypothetical questions," he told a Citigroup analyst.
The potential acquisition Intel-Altera deal surfaced in March, but talks broke down in April, according to published reports. Partners have said such a deal would provide Intel with more firepower to push into the internet of things (IoT )market.
Altera investors have urged the company to return to the negotiating table with Intel, according to a report by Bloomberg News.
9. Internet Of Things
While overall sales were flat year-over-year, Intel's Internet of Things Group sales grew 11 percent in the quarter compared with the year ago period.
Intel's Internet of Things Group's sales growth was "based on strength in the retail and digital security market segments."
Intel continues to forecast "robust growth rates" in the Internet of Things Group,
8. Data Center
The performance of Intel's Data Center Group was a bright spot for Intel in the first quarter.
The Data Center Group's sales were up 19 percent in the quarter to $3.7 billion, Operating profit for the unit was up a whopping 27 percent to $1.7 billion.
"In the Data Center, our manufacturing and architectural leadership, combined with opportunities driven by the values of cloud-computing in each PC usage, continue to yield impressive results," said Krzanich.
Krzanich said the group's success in the quarter was driven by unit growth and a richer mix of units.
7. Mobility
Intel has been increasing its processor presence in the mobile market by releasing handset-targeted chips for phones in emerging markets, such as Indonesia. The company showed off its SoFIA chip this year, a mobile Atom X3 SoC targeting these cheaper-based phones.
Intel CFO Stacy Smith gave an update on Intel's plan to improve profitability of the mobile business by $800 million.
"We are on track to that [goal]," Smith said. "There's two big buckets, if you will: One is the improvements in the product margin and it's a combination of the cost structure we get with SoFIA, and having a great product that’s targeted at the interim value segments of the phone and tablet market."
6. Tablets
Intel's tablet sales were up "significantly" in the first quarter, said Krzanich.
Krzanich stressed that despite analyst predictions that tablet market unit shipments will be down this year, he believes Intel's presence in tablets will continue to grow. Intel's Atom processors are in tablets like the Surface Pro 3 and Dell Venue series.
"I would agree most people are thinking that tablets will likely be down," he said. "We’ve all heard a variety of forecasts, [though it's] a little more difficult to forecast the tablet space. Just as a reference point, our tablet number for Q1 came in right on line with what we had projected."
5. 2-In-1s
Intel's Core M product will continue to drive an uptick in thin, light, fanless 2-in-1 devices in the coming year, executives said during the earnings call.
Core M, introduced right before the holidays, is designed to provide a fanless core product capability for light form factors. The capabilities of this processor series were most recently seen in Apple's newly released MacBook, a 12-inch fanless notebook, as well as Lenovo's Yoga 3 Pro 2-in-1 series.
"So far, the uptake [for Core M] has been very good," said Krzanich. "We think those, combined with our tablet offerings, provide a lot of choices for the consumer market in this mobile space."
4. Skylake
Krzanich stated that Skylake, the company's sixth-generation desktop cordless PC platform, due in the second half of 2015, would provide an incentive for customers who are holding onto their PCs to upgrade.
According to Krzanich, there are approximately "600 million PCs out there, growing by the day, that are greater than four years old." However, he said, Skylake's arrival, coupled with Microsoft's release of Windows 10, will create an opportunity to flip those systems over in the coming year.
"Windows 10, Skylake, all of those things are opportunities that we think we can start to move some of those units," Krzanich said.
3. Grantley
Intel's executives discussed the prospects of Grantley, the code-name for its Xeon E5-2600 and E5-1600 v3 processor families for cutting-edge servers and workstations.
"The increased density in performance that a cloud provider can get with a new product like the Grantley allows them to grow their business without having to grow their footprint as much," said Krzanich. "And so that allows cloud growth at a much more efficient and effective capacity."
2. PC Slow First-Quarter Market
As analysts projected, Intel faced a tumultuous quarter in its PC sales due to weak small- to medium-business demand for its PCs, in part, because of the lingering effects of the Windows XP end-of-life upgrade last summer.
Client Computing Group sales in the first quarter were down 8 percent from the year-ago period, to $7.4 billion. What's more, operating profit for the client group plummeted 24 percent, to $1.4 billion.
A study from research firm IDC, released last week, showed that worldwide overall PC shipments saw a 6.7 percent decline in the first quarter of 2015 from the same quarter last year.
1. PC Future
Intel CEO Brian Krzanich (pictured) on Tuesday told Wall Street analysts that the PC market will decline at a mid-single-digit rate for 2015. Intel has subsequently readjusted its sales guidance for the full year, as the company now expects revenue to be flat for 2015 at $55.9 billion.
Partners hope the release of Windows 10, slated for an unspecified date in 2015, will boost the stagnant PC market and create an incentive for PC owners to upgrade to new systems.
Krzanich added that Intel is seeing shifts in the enterprise market versus the consumer market, Specifically, he said, Intel is seeing a "little bit of weakness in the enterprise segment" while the consumer segment will be a little less weak this year compared with 2014.