Personal computer sales have been lagging, taking a toll on sales revenue for Intel (INTC, Financial) and the industry overall. In a recent report from IDC on PC sales, the firm projected PC sales would decline by 8.7% in 2015. With a decrease in 2015, PC sales will have decreased for the last five years. The outlook also continues to be bleak going into 2016, with PC sales continuing to decline, reporting an expected decline of -1.1%.
IDC is reporting a similar outlook for tablets. In 2015, tablet sales are also expected to decrease, with an estimated decline of 8%. This is revised down from a previous report which expected a -3.8% decline. One positive growth niche for the mobile segment is the 2-in-1 tablet. IDC reports the 2-in-1 segment has growth potential of 86.5% in 2015 for a total of 14.7 million units sold.
In addition to the lower PC sales growth, the personal computing industry is currently struggling with two other factors. First, the stronger dollar's effect on global sales continues to add downward pressure on sales revenue. Second, China's economic issues have caused greater uncertainty about sales growth in the country, specifically for personal computers and mobile devices.
Intel's Computing Innovation
In Intel's latest earnings report, its sales showed the negative downtrend from the suffering personal computing and mobile market. Intel reported total revenue of $13.2 billion, down 5% from the comparable quarter. In Client Computing, sales revenue was down 14% to $7.5 billion. With a 14% decrease, Intel's Client Computing segment suffered the greatest losses of its main business segments. The firm's Data Center Group posted a sales revenue gain of 10% from the comparable quarter to $3.9 billion. The company's Internet of Things segment also reported increased sales growth from the comparable quarter at $559 million, up 4%.
Operating income followed a similar trend for Intel's three main business segments in the second quarter. Operating income for the Client Computing Group was down 38%. The Data Center Group posted a 0.05% gain in operating income from the comparable quarter. In the Internet of Things, operating income was basically unchanged at a growth rate of -0.68% from the comparable quarter.
In the third quarter, Intel has taken some major steps to improve its Client Computing Group. Intel's aggressive innovation in the computing space should help it to substantially grow revenue in the third quarter and also to gain increased market share versus its peers in the computing industry.
Intel's release of its Skylake processor on Sept. 2 is one example of its aggressive innovation. The Skylake processor will help increase demand for Intel powered personal computers and mobile devices. The timing of the Skylake processor is also closely related to Microsoft's (MSFT, Financial) release of Windows 10, which makes Intel powered PC computers even more enticing in the currently stale PC market. The combined introductions will likely spur consumers to upgrade their computers to faster processors with broader capabilities, thus helping grow sales.
The Skylake processor touts a few leading features. First, it is one of the fastest processors on the market for PCs. In personal computers it also offers facial recognition, an enhanced battery life and compatible capabilities that make the use of Microsoft's Cortana more effective.
Additionally, Intel's Skylake processor is also available for mobile devices and specifically for 2-in-1 devices. As 2-in-1 devices are the largest growing portion of the mobile device segment, the Skylake processor should greatly help Intel to capture market share in 2-in-1 sales, while also simultaneously increasing its position in the mobile market. Interestingly, Intel began sales of its new processor in the Asian markets, which should likely help to gauge demand in the region, specifically given the current economic downturn.
In a recent interview with TheStreet, Navin Shenoy from Intel's Client Computing Group talked about some of the key features of Intel's Skylake processor.
An additional product release in the third quarter included the company's new computing chips for hybrid tablets. The new computing chips include the Core M3, M5 and M7 chips and are an upgrade from Intel's current models. The computing chips are primarily targeted for the 2-in-1 and tablet mobile segment of the technology market. The company's greatest focus with its new computing chips will be on the 2-in-1 tablets as it seeks to capture a large portion of the growth intended for 2015.
Both sales of the Skylake processor and the company's new computing chips should boost sales in Intel's Client Computing Group with an immediate impact in the third quarter. Both the processor and new computing chips are expected to have minimal expense effects on the Client Computing Group, keeping the segment's operating margin at a healthy 21%.
Conclusion
The third quarter's introduction of Intel's new products is likely to lead to better than expected quarterly growth overall in the firm's Client Computing Group segment, which has substantially lagged over the past few quarters. Intel's innovation in the market is also likely to help it gain significant market share due to the opportune timing of its product rollouts. Additionally, its product features will likely inspire consumers to upgrade their personal computers and mobile devices, buying new Intel related products in the segment due to the technologically advanced features of the new product offerings.
The aggressive innovation in the firm's Client Computing Group should help to add value specifically in the third quarter. Intel's third quarter earnings call is tentatively scheduled for Oct. 13. Analysts are calling for revenue of $14.25 billion, a decrease of 2% from the comparable quarter. For earnings per share, analysts have an average estimate of $0.59, a decrease of 12% from the comparable quarter. The company's proactive innovation should add incremental value in the third quarter, helping to beat expectations. Given Intel's depressed price in the current market environment, it appears undervalued versus its discounted cash flow value of $35.23. For investors, the third quarter could be an opportune time to buy the stock, reaping the full benefits of an upturn in the market combined with the added sales value generated from Intel's newly released computing products.
