What Happened In Intel’s Third Quarter?

The third quarter results were released on October 14 for Intel (NASDAQ:INTC), and it came with the message that the PC business was still living and had not become an icon to be remembered for the company. But on the contrary, the mobile business did not do that well. In a statement made during the earnings call, CEO Brian Krzanich, commented – “We are pleased by the progress the company is making. We achieved our best-ever revenue and strong profits in the third quarter. There is more to do, but our results give us confidence that we’re successfully executing our strategy of extending our products across a broad range of exciting new markets.” Let’s dig further and find out the major financials discussed during the conference call on the quarter.

A quick quarter glance

Intel reported revenue of $14.6 billion, up from $13.5 billion reported last year in the third quarter. Its operating profit also rose to $4.5 billion, a net income of $3.3 billion and earnings per share of $0.66 a share. The California-based chipmaker beat average analysts’ estimate for the quarter that stood at $14.45 billion as revenue and $0.65 per share for earnings. To be noted was that the management had expected the revenue for the quarter to be in the range of $13.9 billion to $14.9 billion – and the expectations were clearly met in the quarter.

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Let’s find out the factors behind the growth of revenue and earnings mainly with respect to the segments in which Intel operates, and let us judge if there are any potential risks for the company in the near future that were discussed during the earnings discussion.

PC business is looking up

Intel had been facing a hard time with its PC business over the past few years, but the segment has shown signs of revival since Brian Krzanich took charge as CEO in May 2013. For 2014, Intel has been one of the best performing stocks on the Dow Jones Industrial Average.

Since 2011, Intel’s fortunes have seen a downturn, and the company has been faltering. PC shipments have declined 3.7% in 2012 and 10.3% in 2013. To return promise in this segment, Intel’s PC Client group showed growth this quarter with revenue of $9.2 billion – up 9% from the same quarter last year. Its Data Centre Group saw the maximum growth with revenue of $3.7 billion – up 16% from the similar quarter last year. The upcoming Internet of things unit also showed 14% growth over last year with $530 million in revenue.

Intel’s numbers included surprising indicators for sales of PC chips, a market in which it remains a dominant player. The company stated that unit shipments of chips for all such systems rose 15%, while sales of microprocessors and other products associated with notebook computers rose 21%.

The count sales of chips to computer makers kept analysts agape, and it was just a wow from their end.

Tablet shipment sales on track

The CEO last November had vowed to put Intel chips into 40 million tablets this year. He said that Intel would offer subsidies to dealers to reach this goal. Shipments of tablet chips have been on track in this quarter as well with the number standing at 15 million units shipped this quarter. This is an achievement for the company in the quarter, as the company had shipped around 15 million units in the first half of the year.

Mobile business is the laggard

The mobile business continues to struggle having reported a loss of $1 billion, up $810 million from last year. Also revenue was down considerably from $353 million a year earlier, to $1 million this quarter.

Analysts have warned that the mobile business might be the loss-bearing segment for the group for the next couple of quarters. Intel has been struggling to perfect its latest manufacturing process for mobile chips which requires shrinking features to pack more transistors on each chip. It’s true that the yield from working chips has improved for Intel, but it still lags behind the company’s expectations.

Broadwell, a chip for mobile devices that uses the latest manufacturing recipe, is scheduled to arrive this month in laptops and tablets. The company hopes that by manufacturing the cheap SoFIA chip designed for budget smartphones, it will be able to build a brand image in the smartphone arena.

Final thoughts

Intel has added to the delight of several analysts’ speculating on the stock as the stock went up soon after the earnings were released to the market. As Intel moves into the holiday season, there is every reason to believe that sales in the fourth quarter would also remain strong, due to the first shipments of its Broadwell Core-M processors which are surely going to fuel a storm in the chip market. As Intel grabs market share in the notebook space, it serves as good news for consumers who want the best at a reasonable sticker price. Let’s stay tuned and keep watching Intel’s moves during the next quarter.

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