How's that big mobile push going, Intel? Oh a million dollars. In 3 months? Wow (sarcasm)

Hey, Krzanich: Devices, Things still ain't Intel's strong suit

Intel is desperate to reduce its reliance on PCs and servers and break into the markets for mobility, wearables, and the Internet of Things. But its latest earnings report shows it's still struggling to make progress in those areas.

How struggling? Sales for the company's Mobile and Communications group, which makes smartphone chips and data radios, among other things, were essentially nonexistent at a wince-inducing $1m.

Fortunately, Chipzilla is seeing some encouraging signs of life in its core PC and data center markets and its sales are still growing across most of its divisions, albeit not as quickly as shareholders might like.

Total revenues for the third quarter of Intel's fiscal 2014, which ended on September 27, were $14.55bn. It was a scant 8 per cent increase from the same period a year ago, but it still managed to beat analysts' forecasts by a hair and it was a new record for Intel.

Net income was $3.32bn, up a healthy 12.44 per cent from Q3 of 2013, but not much compared to the previous sequential quarter's 40 per cent gain.

Earnings for the third quarter were $0.66 per diluted share, which also beat analysts' estimates and was a company record.

Looking at just the PC Client group, which makes platforms for notebooks and desktops, including Ultrabooks and two-in-one devices, revenues for the third quarter were $9.19bn, a 9 per cent increase from the year-ago quarter and a 6 per cent increase sequentially.

Better still, operating income for the group was up 27 per cent this quarter, at $4.12bn. That's considerably more encouraging than Q3 of 2013, when the PC sales slump was in full swing and revenues for the PC Client group were down 3.5 per cent, year-on-year.

Similarly, Data Center group revenues for Q3 of 2104 were up 16.43 per cent from the year-ago period and 5.44 per cent sequentially, to reach $3.70bn. Operating income for the group as $1.92bn.

Software and Services sales – which includes McAfee Intel Security software – increased only very slowly, growing 2.39 per cent to $558m. But for once the company made a little bit of money on software, with sales of $29m compared to just $1m in the year-ago period.

And the All Other category, which lumps in things like non-volatile memory sales and sales of oddball new products, brought in $575m, a 14.31 per cent gain. It burned more than it brought in, though, posting an operating loss of $634m.

Whither Intel's new strategy?

So what about mobility and the Internet of Things, which CEO Bryan Krzanich was so eager to talk up at this year's Intel Developer Forum conference in September?

As mentioned earlier, Chipzilla's Mobile and Communications group reported sales of a paltry $1m, which was a 99.72 per cent drop year-on-year and a 98.04 decline from the previous sequential quarter. (Intel did the honorable thing and reported each decline as 100 per cent.)

In its earnings release, Intel said this crash-and-burn was "consistent with expectations." Krzanich had few excuses to offer in a conference call with financial analysts on Tuesday, either, saying only that the quarter's low numbers were largely due to "contra revenue" adjustments that will change in successive quarters.

Whatever Krzanich's story, however, it's clear that Intel is investing heavily in this segment, despite poor sales. Mobile and Communications posted an operating loss of $1.04bn in the third quarter, equal to half of the operating profit brought in by the Data Center group.

Intel's nascent Internet of Things group hasn't fared much better. Revenues were up 14.22 per cent this quarter to $530m, year-on-year, which is good. But they're down 2 per cent from the previous quarter, when they were up 24 per cent as compared to 2012.

And here, too, Chipzilla has had to spend. Despite growing revenues, operating income for the Internet  of Things group was flat at $153m, or 3.3 per cent of the total.

The simple fact is that however much Intel is counting on mobility and Internet of Things revenue for its future, it currently sees less revenue from both groups combined than it does from Software and Services. That needs to change, and soon, if any of this is going to be more than just talk. ®

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