Intel Corp.'s (INTC, Financial) second-quarter earnings showed the company is finally firing on all cylinders. The world’s leading chipmaker returned to the revenue growth path several quarters ago, but concerns about future revenue potential lingered on as growth from Intel’s data center group kept coming in lower than the company's targets.
But those concerns might slowly vanish if Intel can sustain or improve its performance. Intel has three major financial reporting segments: client computing group (CCG), data center group (DCG) and internet of things group (IoTG). Client computing, which makes products for the personal computer market, accounted for 55.63% of overall revenue during the second quarter. The global PC market has been on a steady decline and Intel is now focusing on the data center business, which addresses the fast-growing cloud computing industry, and internet of things to take the company forward.
Intel is smart to focus on the growing cloud computing segment because it is apparent the glory days of the traditional desktop PC are over. The growth of smartphones and mobile devices have vastly reduced the need for PCs in every home, and the future of this market looks extremely bleak. Intel’s first task is to reduce the footprint of client computing on its revenue. Fortunately, the company is already moving in that direction.
During the second quarter, Intel’s data center business reported $4.372 billion in revenues compared to $4.027 billion last year, a growth rate of 8.56%. That is an improvement from the 6% growth the company reported for the first quarter of 2017. While this growth is still lower than the double-digit growth Intel said it was targeting for the segment a few years ago, the growth rate has slowly been picking up speed. And any momentum in the cloud segment is a huge boost for the company.
Fortunately for Intel, client computing’s performance remained above par, growing 12% during the first quarter and 6% during the second quarter, which allowed the company to post strong revenue growth for the first half of the current fiscal. This has allowed Intel some breathing space to improve its data center business. If the company manages to hit double-digit growth in this segment over the next several quarters, it will go a long way to balance Intel’s revenue streams.
The size of the client computing group and its future are what continue to weigh heavily on Intel. Despite solid results in the past several quarters, Intel’s stock has gained only 7% over the last year and is nearly flat since the start of the current year.
Disclosure: I have no positions in the stock mentioned above, and no intention to initiate a position in the next 72 hours.
