Today, Intel [NASDAQ:INTC] reported their earnings for the fourth quarter of 2013, and the whole year of 2013. In 4Q 2013, Intel reported earnings of $2.6 billion on $13.8 billion in revenue on a gross margin of 62.0%, this is in contrast to the same quarter a year ago which was $2.5 billion on $13.5 billion in revenue and a gross margin of 58.0%. Compare that to the previous quarter, 3Q 2013, and Intel was down from $2.95 Billion net income on $13.483 billion in revenue. So, quarter over quarter, Intel was down, but year over year they were up. And considering that the fourth quarter is usually Intel’s biggest, that isn’t necessarily a good sign, but analysts had already expected it based on Intel’s forecasts.
For Intel, it was a fairly mixed quarter as they were up in certain divisions and down in others when compared to previous years and previous quarters. A good example is the fact that net revenue for the PC Client Group 2013 was $33.039 billion, which is down from 2012’s $34.504 billion figure, however when comparing the 4Q of 2013 and 2012 the revenue was flat and net income was actually up to $3.395 from $2.829 billion. The PC client group in the the whole year, however, suffered $2 billion less in terms of profits for the whole year. Marking that 2013 as a whole was quite a bad year for the PC market but the fourth quarter itself was not.
Intel’s Data Center Group completely knocked it out of the park in every way possible, beating both 4Q 2012 and the whole year of 2012 with their 2013 figures. They reported $2.998 billion in revenue and net income of $1.462 billion in the fourth quarter, which is a great number, but is less than half the size of the PC Client Group. In the whole of 2013, the Data Center Group pulled in $5.164 billion in profit on $11.238 in revenue which improved slightly upon 2012’s $5.020 billion on $10.511 billion in revenue.
One of the interesting figures that might get overlooked is in Intel’s ‘other’ Intel Architecture operating segments where the company lost $2.445 billion in 2013 versus $1.377 billion in 2012 even though revenue was down to $4.092 billion from $4.378 billion in 2012. The $1.279 billion decline in the PC Client Group’s profitability in 2013 was further magnified by the $1.068 billion loss increase for the ‘other’ IAG which together account for $2 billion in decreased net income for 2013. Considering that Intel’s phones, netbooks, tablets and new devices are all part of the other IAG group, it appears that they are losing more money in this division than ever before. However, it may only be a short term situation if they can finally get more pull on the smartphone and tablet side of things. They clearly have some good tablet SoCs but it remains to be seen if they can ship in volumes to attain profitability.
Clearly, the bright spots for the company are in their Data Ceter Group, but it remains to be seen if their mobile play can actually come out to be a profitable venture. Even with the creation of the Ultrabook fund and various PC initiatives like perceptual computing, it remains to be seen if Intel can actually show an upward trend for 2014. They do have some promising technologies in Baytrail, Haswell and the upcoming Broadwell, however, it appears that their biggest division does the best during the holiday season and I’m not sure they’ll necessarily have a huge 2014. I don’t really see there being many factors in 2014 that will drive consumers to upgrade their recently bought (2012 or 2013) notebooks in 2014. Sure, Intel will probably be able to do that with Data Centers in 2014 with the introduction of Haswell-E and DDR4-based systems in the latter part of the year, but I don’t think they’re going to have a very strong 2014 for their PC group.
And if you look at their forecasts for 2014, they’re basically expecting a flat 2014, even with Data Center clearly looking to continue to grow in 2014, which means there’s a strong possibility that PC will continue to shrink. I know that the 4Q of 2013 appeared to show a slowing in the shrinkage, but I think it will continue to shrink but at a slower pace than before. While Intel doesn’t forecast profit, they do forecast revenue and the 1Q 2014 looks like it will be around $12.8 billion, which is slightly better than how they did last year ($12.58 billion) with a margin of error of $500 million. They did project that gross margin for 2014 would be lower than last year, approximately 60% compared to 62% last year, which indicates that they are likely going to have higher volumes of lower margin, lower ASP products.
Currently, Intel’s stock is down 4.7% or $1.25 in after hours trading at $25.25 in addition to being down 0.49% on the day in anticipation of Intel’s earnings announcement today. I don’t think that 2014 will be a major year for Intel, but it will certainly be a transitional one. They have a lot of promising products, but it remains to be seen if they can make the switch to mobile successfully in order to stem to dwindling of their PC Client Group. There is no doubt that they will continue to make money in that segment, but their investors are constantly worrying about lower and lower revenue and net income quarter by quarter. I also believe that their new products in 2014 will strengthen their standing in the PC market, but they need to show some sort of strength in mobile before they find themselves at a cliff.