Intel: Where's The Growth?

Jun.13.14 | About: Intel Corporation (INTC)


The largest part of Intel, the PC Client Group, has seen declining revenues for the last few years.

The Data Center Group is becoming a larger and larger piece of Intel.

Other segments, such as mobile, are not substantial at this time.

Intel (NASDAQ:INTC) is typically in the news for either its PC segment or its mobile segment. Notably, the PC segment recently had good news as the company raised guidance for Q2 revenues, specifically citing an increase in demand for PCs. The other segment of the business that people like to talk about is the mobile segment, and it has been a tale of woe for Intel.

There is another important part of Intel that does not get nearly the press of the others: the Data Center Group. This is a segment of Intel's business that is growing revenues. The other two segments I mention above have been losing revenue recently.

Overall Revenues and Margin

First, I will take a look at the company as a whole, starting with the last five years of revenue:

INTC Revenue (Quarterly) Chart

INTC Revenue (Quarterly) data by YCharts

Intel topped out its revenue in Q3 of 2011 and has been slowly trending lower ever since.

Here is the five-year history of operating income:

INTC Operating Income (Quarterly) Chart

INTC Operating Income (Quarterly) data by YCharts

While the operating income graph largely mirrors the revenue graph, the decline has been more steep on the income side than the revenue side. Operating margin has declined substantially as shown in the next graph.

INTC Operating Margin (Quarterly) Chart

INTC Operating Margin (Quarterly) data by YCharts

Some of the margin decline is due to Intel's increasing investment into the mobile segment which is producing large losses ($929 million in the last quarter alone). However, declining operating margins in both the PC Client Group and the Data Center Group are also contributing substantial declines to the overall company margin.

Data Center Group and PC Client Group History

The vast majority of Intel's current business resides in the PC Client and Data Center Groups. Over 86% of total revenue in Q1 2014 came from these two segments. I will compare the two below.

The financials of the Data Center Group show nice revenue growth, but declining margins.

(In Millions)

2013 2012 2011
Revenue $11,238 $10,511 $9,911
Operating Income $5,164 $5,020 $5,053
Operating Margin 46.0% 47.8% 51.0%
Click to enlarge

In Q1 2014, the Data Center Group recorded revenue of $3,087 and operating income of $1,317 for an operating margin of 42.7%.

The following are the financials of the PC Client Group. Again, the declining margins are notable.

(In Millions)

2013 2012 2011
Revenue $33,039 $34,504 $35,624
Operating Income $11,827 $13,106 $14,840
Operating Margin 35.8% 38.0% 41.7%
Click to enlarge

In Q1 2014, the PC Client Group recorded revenue of $7,941 and operating income of $2,802 for an operating margin of 35.3%.

Data Center Group Going Forward

This segment of Intel has grown revenues and is expected to continue to do so. Last year, Diane Bryant, the senior vice president and general manager of the Datacenter and Connected Systems Group, predicted that revenues for the group would hit $20 billion by 2016.

On the Q1 2014 conference call the CFO, Stacy Smith, had this to say (source: Seeking Alpha):

Turning to full year 2014. We're still planning for revenues to be approximately flat to 2013. We expect PC Client Group revenue to decline in the mid-single-digits and the Data Center Group revenue to grow in the low double-digits.

With Intel's announcement yesterday giving new guidance on the PC front, the PC Client portion of the quote above should be ignored. The takeaway here is that the Data Center Group is expected to grow revenues in the low double-digits.

Smith went on to say:

In the Data Center, we continue to see robust growth rates in the cloud segment and the enterprise segment grew in the first quarter. These trends led to Data Center growth of 11% year-over-year.

Let's assume that we will continue to see low double-digit growth for the Data Center Group into 2016. An annual revenue growth of 11% would put the 2016 sales figure at $15.37 billion. A little short of Diane Bryant's prediction, but certainly the $16 billion figure is a possibility.


Any investor that is interested in Intel should be aware of all segments of the business. While the Data Center Group does not get the coverage of the other segments, it a very important piece of the company. It could very well be considered the most important piece within a few years, yesterday's good news on the PC front notwithstanding.

For the full year of 2011, Data Center Group revenues contributed 18.4% of the total company revenue. In Q1 2014, Data Center Group revenues contributed 24.2% of the total company revenue.

In 2011, the PC segment contributed a little under 3x the operating profits of the Data Center segment. In Q1 2014, the PC segments contributed a little under 2x that of the Data Center segment.

At this time the Data Center Group is the part of Intel providing the most revenue growth. The operating margins of the segment, while they have declined, are also substantially higher than the PC Client Group.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.