Intel Has Become The BlackBerry Of Semiconductors

Summary

  • Intel's EPS beat masked underlying declines in revenue and operating income.
  • Intel's combining of the PC Client Group and the Mobile and Communications Group scarcely serves to conceal Intel's huge mobile losses.
  • Intel's mobile strategy is an abysmal failure and is reminiscent of BlackBerry's response to Apple's iPhone.

Intel (NASDAQ:INTC) initially wowed investors with a solid EPS beat of $0.55, which pushed the stock up after hours. After digesting the earnings release, it becomes clear that the picture is not so rosy. Intel's operating income was actually down substantially nearly 25% y/y to $2.896 billion, while revenue was down 4.6% y/y to $13.195 billion. The EPS beat was an artifact of an abnormally low income tax provision for the quarter. Intel is no longer a growth story despite the representations of Intel management.

Oldest Trick

A post on zerohedge.com called this the "Oldest Trick In The Accounting Book." It's not clear how or why Intel was able to lower its provision for taxes line item from the year ago quarter's amount of $1.126 billion to just $277 million for this quarter. Perhaps Intel had overpaid in previous quarters. Whatever the explanation, the impact was to camouflage the steep income decline.

On the conference call, Intel management gave the impression that Data Center Group and Internet of Things Group were both growing robustly. Revenues for the groups were up modestly, 9.7% y/y for DCG, 3.7%f or IoTG. Operating income was flat year over year for both groups.

The lack of operating income growth is a direct consequence of the pressure Intel faces from lower cost and lower power ARM processor options in both the Data Center and IoT. Intel will fight hard to hold on to its market share, probably making it difficult or impossible for ARM processor vendors to turn profits in these categories. Income growth will stall or even decline, but Intel investors can take some comfort in the fact that Intel's competitors are hurting more.

Impact of Mobile Device Consolidation

The Client Computing Group, formed from consolidating the PC Client Group (PCCG) and the Mobile and Communications Group beginning

This article was written by

Mark Hibben profile picture
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Mark has a masters in Electrical Engineering from USC, is an independent iOS developer, and blogs about technology trends and companies, the focus of his investments.

Disclosure: I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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