Intel closed the book on a smashing first full year under CEO Brian Krzanich on Wednesday, reporting record revenues and earnings that beat analysts' estimates. But not every aspect of its business looked equally healthy, with mobile as the obvious trouble spot.
Chipzilla pulled in $55.9bn in revenues during its fiscal 2014, a 6 per cent gain over the previous year's sales. And its net income for the year was up 21.7 per cent, to $11.7bn.
Revenues for the fourth quarter, which ended on December 27, were $14.7bn, a 6.4 per cent hike over the same period a year ago. Quarterly net income was $3.7bn, which was 39.5 per cent higher than the year-ago quarter.
Naturally, these better-than-expected results yielded impressive returns. Intel posted earnings of $0.74 per diluted share for the fourth quarter, which was higher than even the highest estimate proffered by the Wall Street worthies polled by Yahoo! Finance.
PCs to the rescue
To a certain extent, however, Intel's good fortune was all down to the whims of the market. The chipmaker's PC Client division, which makes chips for traditional desktops and laptops, still makes up the lion's share of its business – and luckily for it, the years-long slump in the PC market finally seemed to slow in 2014.
For fiscal 2014, $34.7bn of Intel's revenues came from the PC Client unit, or 62 per cent of the total. The group also accounted for 95.4 per cent of Intel's annual operating income.
It is a bit worrying, then, that this segment of Chipzilla's business isn't growing more rapidly. PC Client revenues for the fourth quarter were $8.9bn, which was just 3 per cent higher than the year-ago quarter. And the unit's full-year revenues grew just 4.2 per cent, to $34.7bn.
Price sensitivity among PC makers was a big part of the problem in 2014. While platform sales volume for the PC Client group was up an average of 8 per cent throughout the year, average selling prices were down 4 per cent over the same period.
Fortunately, Intel was able to offset some of this sluggishness with meaningful growth in its Data Center group, which has long lagged behind PC Client. Data Center revenues in Q4 were up 25.4 per cent, year-on-year, to $4.1bn. And the unit brought in $7.3bn for all of fiscal 2014, an 18.3 per cent gain.
The company's fledgling Internet of Things division continues to show encouraging growth, as well. Its fourth quarter revenues were $591m, a 9.9 per cent increase from the year-ago quarter. And it managed to grow 18.9 per cent across all of fiscal 2014, for total annual revenues of $2.1bn.
Software and Services still aren't more than a drop in the bucket for Intel, and this side of Chipzilla's business actually shrank by 5.75 per cent in Q4, with revenues of $557m. Worse, the groups operating income for the quarter decreased by 16.7 per cent, leaving just $25m.
Taking the full year into account, however, Software and Services looked slightly better. The division's annual revenues were essentially flat at $2.2bn, but its annual operating income of $55m represented a 129.2 per cent gain over 2013's figure.
Intel's smarphone black hole
But the elephant in the room remains Intel's moribund Mobile and Communications division. With ARM continuing to dominate the smartphone and small tablet markets, Intel's would-be phone chip biz managed to slurp in just $202m in revenues for all of fiscal 2014, an 85.3 per cent decline over the previous year. And looking at the fourth quarter alone, it actually spent more than it earned in sales, putting it $6m in the red.
A glance at the group's operating income shows that Mobile and Communications has gone way past circling the drain and is now headed down the pipe. The unit posted an operating loss of $1.1bn for the fourth quarter, which was 27 per cent more than it lost during the same period a year ago.
And that was no fluke quarter, either. The group's total losses for fiscal 2014 amounted to $4.2bn, which was 33.6 per cent more depressing than its losses in fiscal 2013. How Krzanich plans to gain Intel a foothold in this market, as mobile devices become an ever-more-important segment of the computing market, is anybody's guess.
Of course, one trick would be to just sweep the whole unit under the rug until Intel can figure out how to make it profitable. In November, Krzanich announced plans to roll Mobile and Communications into the PC Client division, where its hemorrhaging won't be so noticeable.
If investors needed another reason to grumble, however, Intel gave revenue guidance for the first quarter of its fiscal 2015 of $13.7bn, which was slightly less than the Wall Street analysts were hoping to see.
Investors, however, seemed largely to take Intel's news in stride. The company's share price dipped only slightly on the news, later to fall by another 1.2 per cent in after-hours trading. ®