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Intel Reports Stronger Q2 2014, Raises Expectations

Intel Logo Intel Logo

Intel reported stronger than expected quarterly earning for the second calendar quarter of 2014. In Q2 2014, Intel [NASDAQ:INTC] managed to report $2.8 billion in profit on $13.8 billion in revenue. As a result, they reported an earnings per share of $0.55 and generated $5.5 billion in cash from operations. They also paid out dividends of $1.1 billion and used $2.1 billion to repurchase 74 million shares.

Now, compared to the previous quarter Intel’s revenue of $13.8 billion was $1 billion or 8% higher than the $12.8 billion reported last quarter. Additionally, they reported an increase of nearly 5% to their gross margin to 64.5% up from 59.6%. This is surely going to make a lot of Intel’s investors very happy and should translate to much higher profits, which it has. Intel’s $2.8 billion is an increase of 45% from the $1.9 billion profit figure that they reported last quarter, which makes Intel’s stock look really good. Compared to the same period a year ago, Intel’s revenue was also up about 8% and their profit was up 40% from $12.8 and $2.0 billion respectively.

Intel Financials

Intel Financials

Intel’s earnings for each business division showed strength in almost every single division except for Mobile and Communications. The PC Client Group revenue was $8.7 billion, up 9 percent sequentially and up 6 percent year over year. Since Intel is generally considered a bellwether for the rest of the PC industry, nearly 10% of growth quarter over quarter in the PC business is huge. The 6 percent growth over the same quarter a year ago also means that this is more than a cyclical increase and that the PC industry may be starting to rebound. Their Data Center Group reported $3.5 billion in revenue which was a healthy 14 percent sequentially and a whopping 19 percent. This has traditionally been Intel’s rock and most reliable source of reliable revenue and profit growth as the PC Client Group struggled over the past 2 years. In their Internet of Things Group (IoT) they reported revenue of $539 million, up 12 percent over the previous quarter and 24 percent other the same period a year ago. This looks great for Intel’s IoT business, but the truth is that a year ago there was almost no IoT business for anyone, so it seems a bit too early to start comparing to a year ago. But still, 12 percent over the previous quarter isn’t bad except for the fact that IoT is supposed to be one of the biggest growth sectors in semiconductors right now. And now for Intel’s black eye, the Mobile and Communications Group which reported a measly $51 million in revenue and reported a decrease of revenue from the previous quarter of 67 percent and a decrease compared to the same quarter a year ago of 83 percent. Their software and services operating segments reported revenues of $548 million, basically flat (down one percent) over the previous quarter and up 3 percent compared to the same quarter a year ago. Obviously this would be considered mostly flat, so many will mostly ignore this division when looking at Intel’s earnings.

Intel also reported their outlook for the third quarter of 2014 as well as the full year 2014. In the third quarter of 2014 they expect to report $14.4 billion in revenue, give or take $500 million. They also expect gross margin to increase to 66 percent, from 64.5 percent, plus or minus a few points. For the full year of 2014 Intel increased their outlook for revenue growth, expecting overall revenue growth of 5 percent, slightly higher than previous expectations (making investors very happy).

For Intel as a company, they have done very well this quarter and that is quite obvious. However, Intel’s mobility division that focuses on tablets and smartphones has taken an absolute beating and may indicate a serious weakness in their business plans. Intel has been promising better and better chips for tablets and smartphones, which may actually be true, however Intel has failed to gain serious design wins and as a result they only reported $51 million in revenue last quarter which is shameful compared to their biggest competitors, MediaTek and Qualcomm. I don’t know what Intel has planned to resolve these issues for the second half of 2014, but the second quarter of 2014 was an ugly one for Intel’s mobile division and that may scare some investors knowing how important it is to have a strong mobile presence.