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More on Intel: Server CPU sales are healthy, mobile sales aren't

  • Intel's (INTC) PC Client Group (PC CPUs + connectivity and living room chips) saw its sales fall 1.5% Y/Y to $7.94B (62% of revenue). The Data Center Group (server/networking/storage chips) saw its sales rise 11% to $3.09B.
  • Internet of Things Group (embedded products) sales rose 32% to $482M. But Mobile & Communications Group (mobile products, inc. Atom CPUs) sales fell 61% to just $156M.
  • Software/service sales rose 6% to $553M, and all other sales (inc. flash memory) rose 18% to $545M.
  • While the PC and data center units respectively had op. income of $2.80B and $1.32B, the mobile unit had a whopping $929M op. loss, and the "Other" unit a $773M op. loss. Internet of Things had a $123M op. profit, and software/services a $7M op. loss.
  • The groups are the product of a new reporting structure.
  • PC and data center unit volumes respectively rose 1% and 3% Y/Y. PC ASPs -1% Q/Q and -3% Y/Y, data center ASPs +1% Q/Q and +8% Y/Y. Desktop ASPs +4%, notebooks -8%.
  • In its CFO commentary (.pdf), Intel attributes it strong Q2 GM forecast to lower 14nm start-up costs, higher volumes, and lower platform write-offs, partly offset by higher tablet volumes and related contra revenue for OEMs.
  • Intel's cash/investment balance fell by $1B Q/Q to $19B ($11B offshore). Inventories fell by $409M to $3.76B, and headcount by 1K to 106K.
  • INTC +2% AH. Q4 results, guidance, PR
Comments (15)
  • Philip Marlowe
    , contributor
    Comments (954) | Send Message
     
    Intel is really not doing well on mobile. I guess I won this argument with Ashraf. Alas, Ashraf does not post much on Seeking Alpha anymore, so he cannot acknowledge my brilliance.

     

    PS: If you want to take advantage of the strength in Intel servers I recommend the following small caps: SMCI and SILC.
    15 Apr, 05:27 PM Reply Like
  • Sal Marvasti
    , contributor
    Comments (1364) | Send Message
     
    Ashraf was too bullish about Intel in mobile
    15 Apr, 06:33 PM Reply Like
  • techy46
    , contributor
    Comments (5742) | Send Message
     
    Intel's 5 million tablet chips this quarter and 40 million for the year is OK considering Intel's last start. The whole contra revenue issue will evaporate by end of 2014. The bigger issue will be Android devices in Q2 and beyond plus Windows 8.1 replacing Windows XP. I don't think business are going to by Android or Apple devices to run X86 applications.
    15 Apr, 07:43 PM Reply Like
  • platonicbomb
    , contributor
    Comments (1164) | Send Message
     
    Intel is doing fine in mobile. Did you listen to the conference call or are you just going by the numbers without any context.
    16 Apr, 04:50 AM Reply Like
  • Hendershott
    , contributor
    Comments (1514) | Send Message
     
    I kind of miss him.
    15 Apr, 06:09 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (954) | Send Message
     
    Me too.
    15 Apr, 06:16 PM Reply Like
  • Michael Blair
    , contributor
    Comments (4579) | Send Message
     
    @Philip Marlowe - Brilliant yes, but wrong nonetheless. The low revenues from mobile are net of contra revenues and therefore understated. Intel shipped processors for 5 million tablets in the quarter which is well over last year. The segment will continue to show low revenues until the contra revenue ends later this year. Krzanich reinforced the view that Intel will meet its 40 million tablet target for the year.
    15 Apr, 06:12 PM Reply Like
  • dubyadeebee
    , contributor
    Comments (197) | Send Message
     
    Michael - Haven't read the call transcript yet, but unless INTC changed its accounting methods in addition to the well publicized changes in reporting structure, the reported $156 M in mobile group sales would NOT reflect contra revenue. Considering the enormous size of operating loss reported, if the contra revenue were actually reported in net sales as it should be, that entire unit would almost certainly have had to report negative revenue for the quarter.

     

    While 5 million tablet processors in Q1 sounds impressive considering they only did about 12 million all last year, it doesn't mean 40M (much less your rumored 60M) are guaranteed to happen. In fact, 50% Q/Q growth for the next 3 quarters is required just to hit the 40 M target. That's a tall order for a company that has been experiencing difficulty in consistently growing any part of its business more than 20% Y/Y let alone Q/Q.

     

    And why would anyone think that contra revenue is somehow going to suddenly go away "later this year"? It will hopefully be reduced with the next generation of chips, but INTC is still at least 2 generations away from having truly competitive SOC chips for the phone market. Unless the idea of competing in the phone market goes the way of Intel TV, it should be expected that contra revenue will still be part of the INTC vernacular into at least the first half of 2016.
    15 Apr, 10:08 PM Reply Like
  • Rose_Colored_Glasses
    , contributor
    Comments (929) | Send Message
     
    @duby-
    I saw Stacy Smith on FBN today and he confirmed they had the design wins and were well on track to deliver the 40 million tablet units this year. To your point, it is not a guarantee, but Mr. Smith usually is a sound, conservative voice for INTC - my money would be that they will hit that target.
    15 Apr, 10:36 PM Reply Like
  • Michael Blair
    , contributor
    Comments (4579) | Send Message
     
    @dubyadeebee - the theory of the case is that the contra revenue induces OEM's to design platforms using Intel SOC's and if they are commercially successful they will continue to do so without subsidy going forward. At the same time, Intel's process advances reduce the cost of those chips. As far as the revenue goes, Stacy Smith was pretty clear that contra revenue is a deduction from gross revenues.
    15 Apr, 11:25 PM Reply Like
  • platonicbomb
    , contributor
    Comments (1164) | Send Message
     
    The conference call provided excellent context. Better to read it before speculating :)
    16 Apr, 04:52 AM Reply Like
  • dubyadeebee
    , contributor
    Comments (197) | Send Message
     
    On CNBC Apr 16, Jon Fortt said his understanding was the company expected contra revenue to begin to decline late in 2014 and hopefully go away by the end of 2016 - similar to the schedule I suggested above. Fortt made those comments before his interview with Krzanich (which I unfortunately was not able to view), don't know if anything there would have shed more light on the question.
    17 Apr, 01:31 AM Reply Like
  • platonicbomb
    , contributor
    Comments (1164) | Send Message
     
    Stacy Smith on the CC:

     

    "So, I think on a like dollars per unit, it comes down pretty dramatically over the course of 2014. And it should be relatively small, if at all, as we get into 2015. And it's, again, the enablement we're doing around the bill of materials."

     

    So contra revenue may be eliminated by end of 2014 (best case scenario) or may peter out in 2015 if management is guiding accurately.
    17 Apr, 01:46 AM Reply Like
  • dubyadeebee
    , contributor
    Comments (197) | Send Message
     
    Michael - Are you saying that Smith clearly stated the accounting procedure has changed in addition to the reporting structure? From my reading of their 2013 filings, contra revenue has been treated as an expense item, and has not been accounted for on the revenue line. While accounting for rebates, kickbacks, marketing, freight, quantity or quality allowances, bribes etc. as expenses is not unique to INTC, it can sometimes be misleading. If INTC has in fact modernized that accounting policy, it would be a step forward. But I would be more than a little surprised if you're actually correct about that. Unless they are including Haswell revenue for convertibles, two-in-ones, etc in the mobile revenue (which seems unlikely), the $156 M revenue would seem to be consistent with the gross revenue (before contra revenue) one would expect for the level of shipments they reported for mobile processors. If they did include a significant amount of Haswell revenue in the mobile segment report, that would actually make the $900+ M loss in that unit even more alarming and further dim the prospects of ever achieving profitability in that market area.
    17 Apr, 02:02 AM Reply Like
  • Hendershott
    , contributor
    Comments (1514) | Send Message
     
    Ashraf will get better as he gets older, like most of us.
    15 Apr, 10:50 PM Reply Like
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