Intel (INTC) is the dominant semiconductor company in the world with annual revenues of $54B in 2011. This is 18% of the $299.5B in revenue for 2011 reported by the WSTS (World Semiconductor Trade Statistics). Revenue by operating group shows just how dependent Intel is on further growth of the X86 PC and X86 server market.
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The comparison is even more stark when comparing operating income by group.
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PC Client and Data Center Group
Intel's only competitor in the X86 microprocessor market is Advanced Micro Devices (AMD). In 2011 AMD's total revenue was a small fraction of Intel's - $6.6B. When you count only AMD's X86 Computer Solutions microprocessor revenue of $5B it's even smaller. Essentially, Intel cannot grow much more by taking X86 microprocessor's market share.
Recently, Intel announced its X86 Coprocessor called Xeon Phi for the high performance computing market. It will compete with Nvidia's (NVDA) Tesla products. The market is small right now with Nvidia selling $265M worth of Tesla GPUs in since 2008. Not exactly a needle mover for Intel.
Mobile - Other Architecture Group
Apple (AAPL) and others have said we are entering a 'Post PC World'. Last week Microsoft (MSFT) announced that they are making their upcoming Windows 8 available to run on ARM (ARMH) chips with Windows Office. In fact they announced their own Tablet last week called 'The Surface'. One version runs on a processor from Nvidia and one runs on an Ivy Bridge processor from Intel. The Nvidia processor tablet will be released with the Windows 8 launch this fall and the Intel processor tablet in early 2013 according to Microsoft. Obviously, each is targeted to different markets but this will be an interesting sales comparisons when both are launched.
Isolating on the 'Other Intel Architecture Group'...i.e. mobile.
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Within this group are the Infineon baseband processors, RF transceivers and power management chips plus the Atom microprocessors for tablets and smartphones. From the graph above one can see that this group is not profitable. Profitability is of no consequence right now as Intel tries to grow its mobile revenue. What is noticeable is the deceleration of revenue growth as netbook sales fell off without a corresponding pick up of Atom processors in tablets.
Earlier this year Intel's new smartphone processor platform called Medfield was picked up by Lenova in their K800 phone and has been picked up as the processor in a little known Xolo 900 made in India. There is little doubt that Intel will continue to leverage their Fab technology to further improve performance of their low power smartphone processors.
But so far top line revenue has seen little impact.
Software and Services Group
So how has the McAfee purchase worked out?
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Obviously not up to the PC client's operating income margins.
Conclusion
Intel has proven that they can generate enormous margins in the X86 PC microprocessor and Server market. But if Tim Cook of Apple is right about the fact that we are entering a Post PC World, then Intel must get its mobile group's revenue and operating income appreciably up over the next few years.
Can they do this? I for one will not count them out for three reasons:
1) They have the money to spend
2) They have the Fab processing technology and the world's best facilities to run the wafers in.
3) Internally generated designs or a purchase of an ARM chip company could spin Intel's mobile growth curve on a dime.
Any fall off in the traditional PC sales will take place over a number of years. In the meantime Intel pays a annual dividend of 3.1 % and would be a safe buy this summer on any significant sell off in the market. Goldman Sachs did recommend shorting the S&P 500 Thursday and the June Jobs report is due out July 6th.
Data from Intel's Earnings Releases and 10Qs.
