The processor giant, Intel Corp.(INTC, Financial), released its fourth-quarter fiscal report on January 15 and delighted the Street investors and analysts by posting a fabulous set of numbers that beat the Street estimates. As Intel has been propagating around the concept of “Internet of things”, this clean report card does reflect that the company is putting its thought processes in the right direction. Let’s get to the major takeaways that were shared by the management during the earnings release.
A quick quarter recap
Intel reported a net income of $3.7 billion, non GAAP earnings stood at $0.74 a share on revenue of $14.7 billion that was up 6% year-over-year. The earnings of Intel surpassed the Street estimate of $0.66 a share while the revenue met the Street expectations.
For the full year, Intel produced $55.9 billion in revenue, up by a whopping 6% on a y-o-y basis, and net income came at $11.7 billion with annualised EPS standing at $2.31 a share.
Gross margins in the quarter stood at 65.4% growing 0.4 percentage points sequentially and 3.4 points year to year, and this rise could be attributed to the higher platform average selling prices for the PC Client group and the Data Center group microprocessors and chipsets.
Let’s get into the segment’s growth in the fourth quarter to gain better insight on how Intel actually performed in the fourth quarter.
Going by business lines, the numbers look impressive
Intel has been increasing its focus on the Internet of Things unit that has demonstrated rapid growth in revenue of $591 million in the fourth quarter, up 12% sequentially and 10% annually. For the entire year, the IoT department climbed 19% in revenue to be worth $2.1 billion.
Gartner estimates that this market is about to grow almost 30 times from an installed base of 0.9 billion to 26 billion by 2020. Intel is driving its cash in the right direction and is foraying into the IoT market and other emerging technologies.
The chipmaker’s data center business continues to show robust growth as a result of the strong portfolio built around cloud technology and data analytics. In fact, it appears that this business line is the best performing segment with $4.1 billion in Q4 revenue, accumulating $14.4 billion for the total year, up 18% on an annualized basis.
However, the revenue of the software and services segment saw a dip of 6% and remained flat sequentially at $557 million. Also the PC Client department showed a drop of 3% sequentially to $8.9 million in revenue in the last quarter. At the CES 2015, Intel has launched the full lineup of its 14 nm fifth generation core line of Broadwell processors which offers nearly 22% improvement in 3D graphics performance and allows 50% greater speed for video conversion. Intel is expecting that this Broadwell chip to do really well after its launched in a dozen of new systems in the current quarter. If Broadwell receives widespread recognition, it could become a game changer for the company in the PC line of business.
Though Intel gained market share in the mobile and communication group, its revenue has declined drastically through the previous fiscal year. The group soured with negative revenue of $6 million.
However, Intel’s target of shipping 40 million tablets in 2014 was achieved and surpassed as the company shipped a total of 46 million tablets in 2014, thus, becoming one of the industry’s largest merchant silicon providers in tablets.
Management looks optimistic, yet cautious
Irrespective of some departments not performing that well in the quarter, CEO Brian Krzanich commented that the fourth quarter was “a strong finish to a record year. We met or exceeded several important goals: reinvigorated the PC business, grew the Data Center business, established a footprint in tablets and drove growth and innovation in new areas”.
Intel is expecting to boost its mobile business in 2015 aiming at driving out $800 million in revenue this year. For the first quarter of 2015, the Street estimates earnings of $0.51 per share on top of $13.77 billion in revenue. However, the Intel management has set the revenue goal wavering the line with the analyst forecast of $13.7 billion, plus or minus $500 million. With respect to gross margins, the company expects it to decline to 60% in the first quarter of 2015 mainly due to the higher factory start-up costs, higher platform unit costs on 14 nanometer products and lower platform volumes. As the 14 nm becomes a larger mix of its portfolio it expects the costs to go down and therefore expects the gross margins to improve towards the second half of the year.
Last word
As the world renowned chipmaker participates in a broader range of products and emerging segments going forward, there is a lot to witness in 2015 as far as improvement of the top and bottom line is concerned. Let’s stay tuned and stay invested in Intel as it holds a bright future ahead.
