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Intel Beats Estimates, Reports Strong Q3 2014 Earnings

Intel Logo Intel Logo

Today, Intel (NASDAQ:INTC) reported its earnings for the third quarter of 2014.

Intel’s expected consensus earnings were $0.65 per share, while the company reported an EPS of $0.66  on record $14.6 billion  in revenue. As a whole Intel reported $3.3 billion in profit on $14.6 billion in revenue. It also generated approximately $5.7 billion in cash from operations and paid back $1.1 billion in the form of dividends to investors for the quarter while using $4.2 billion to repurchase 122 million shares of stock. This is very likely thanks to the strength of the PC market recently in North America and Europe. Intel’s earnings for the quarter were up nearly 20% quarter over quarter and their revenue was up 5% quarter over quarter. When you look at the same time a year ago, Intel’s profit was up 12% and revenue was up 8%.

For Intel’s business divisions, Intel once again saw a mixed bag of results. Its PC Client Group saw revenue grow to $9.2 billion, up 6% sequentially and 9% year over year. Its Data Center Group also saw sizable improvement, growing to $3.7 billion from growth of 5% sequentially and 16% year over year (showing Intel’s renewed server growth). The IoT Group saw revenue of $530 million, down 2% sequentially and up 14% year over year. As far as the mobile efforts go, its Mobile and Communications group saw revenues of only $1 million, consistent with Intel’s expectations. Lastly, software and services operating group also saw revenues of $558 million, up 2% year over year and sequentially.

What will it take for Intel to compete in mobile?

Intel is still struggling to compete in the mobile space, continuing to take heavy losses of over $1 billion (now at $3 billion this year alone) and having very few design wins to show for. It’s very likely going to consider their upcoming Broadwell chips as part of their mobile push, but the truth is that those chips are still going into laptops and high-end tablets rather than smartphones and affordable tablets where the real volumes lie. The new Core M processors are showing some serious promise, but they are still too expensive to put into a smartphone or tablet even though their power consumption is impressively low thanks to the new 14nm process. But they still need to find a way to make themselves relevant in smartphones and tablets, especially when you consider how much money they’re spending to keep that division going.

There is one seriously troubling business metric here that Intel is clearly trying to hide. That’s the Mobile and Communications Group. It reported a minuscule $1 million in revenue for a division that last quarter reported $51 million in revenue, that’s a reduction of around 98% quarter over quarter. And when you look at 2Q 2014 against the previous quarter (1Q 2014) their Mobile and Communications Group was already down 67 percent sequentially and down 83 percent year-over-year. What’s even crazier is that if you look at the Mobile and Communications Group revenues for the 1Q 2014, the company was already having a hard time while earning $156 million in revenue. During 1Q 2014, Intel reported $156 million in revenue which was already down 52% sequentially and down 61% year over year. Intel has successfully eviscerated their entire mobile division to effectively nothing, Investors are absolutely going to demand that Intel abandon their mobile push because it clearly isn’t working and its costing the company billions of dollars per year to run, essentially, into the ground.

Intel also recently announced its new Core i7 5960X along with a full line of Haswell-E based performance processors for the X99 motherboard platform, which now uses DDR4 instead of DDR3. However, this launch came at the tail end of 3Q 2014, and very likely won’t affect Intel’s sales as much as it will in 4Q 2013. It also launched the accompanying Xeon E5 v3 family of server processors, also based on Haswell-E and also running DDR4 shortly after the announcement of the Intel Core i7 Extreme processor. Both lines bring valuable advancements to Intel’s own server and high performance desktop lines, where the company is strongest.

Intel also guided for the 4Q of 2014, stating that it expects to once again have record revenues to the tune of $14.7 billion, plus or minus $500 million and that they expect gross margin to go down to 64% from 65%. They expect R&D to increase a bit from $4.8 billion to $4.9 billion, even though the previous quarter was $4.9 billion, so it isn’t really much of a change.
Q4 2014. Intel was trading up 2% during regular hours and is now trading up around 2% in after hours trading.