Huffing and puffing Intel needs new diet of chips if it's to stay in shape

Fatty Chipzilla suffers muscle cramps in 2015 as shriveling PC sales hamstring business

My web browser ate my homework. I spent nearly two hours typing an analysis article on Intel's latest financial figures into our intranet thing when the browser tab unexpectedly refreshed and I lost everything. Hadn't saved. Moron.

So let me start again and get to the point: the nosedive in sales of personal computers around the world is having a very real and a very negative effect on Intel, a once seemingly unstoppable force in technology.

Intel's core business – making microprocessors for PCs – is going to starve to death because virtually no one is buying new computers. Microsoft's free giveaway of Windows 10 isn't helping either, as most normal people buy a new PC when they need to do a major OS upgrade. The rollout of the new Skylake processors is also progressing like a slug in honey, and thus doing no favors to Intel's bottom line.

In the 12 months to December, Intel desktop processor volumes were down 9 per cent on the year-ago period, notebook processor volumes were down 10 per cent, and tablet processors down 33 per cent. Chipzilla averted disaster in the PC market by jacking up its average selling price of processors by 17 (seventeen) per cent, thus keeping its overall revenues flat year-on-year. It's good to be a monopoly.

Over in the data center, where Intel holds 99 of the processor market, processor volumes were up seven per cent on the year-ago period. You can drill into the data center numbers right here on our sister site, The Next Platform.

Meanwhile, Intel's Internet of Things division grew its revenue.

Chipzilla knows it cannot rely on PC CPU sales for much longer – and investors know it too: Intel's shares tumbled five per cent in after-hours trading on Thursday after these figures were published. Sure, personal computers continue to bring in billions of dollars for Intel, but the graphs are going in the wrong direction. They are going downwards.

So here's the plan.

The Internet of Things.

Despite not having much of a reputation for building low-power, battery-friendly gizmos – the building blocks of IoT – Intel is trying and trying and trying to kick-start itself in that embedded engineering space. Think of processors in drones, wearables, virtual-reality headsets, skateboards, bikes, anything that doesn't look like a desktop PC.

Gartner analyst Mark Hung told El Reg on Thursday that Intel will milk its x86 data center chips for all their worth over the next one to five years, to make up for dwindling PC CPU revenues. Then in five to ten years from now, Intel will switch from relying on personal computers to relying on IoT gadgets, he added.

"Today's financial results were largely what we expected: the data center group is leading the charge by being the profit engine for the company," said Hung.

"Going forward, a key question is: can Intel keep up this growth rate. On a positive note, the client computing group was able to raise its average selling price, allowing it to overcome the drop in volumes.

"As the world evolves from a mobile world to an IoT world, the long-term growth driver for Intel will be the Internet of Things, certainly in the next five to 10 years. In the next one to five years, the growth driver has to be data center infrastructure: servers and networking."

You can grab Intel's fourth-quarter and full-year figures for 2015 from here and here [PDF]. They were published on Thursday. Here's a summary:

  • In the three month period of October to December 2015:
    • Revenues were $14.9bn (£10.4bn), up one per cent on the year-ago quarter. This is pretty much in line with what analysts expected.
    • Net income was $3.6bn (£2.5bn), down one per cent year-on-year.
    • Earnings per share works out to 74 cents. Some analysts expected this to be as low as 63 cents.
    • The Client Computing Group – which does PCs and similar stuff – recorded revenues of $8.8bn, up three per cent on the year-ago quarter, with volumes flat and the average selling prices up five per cent.
    • The Data Center Group trousered $4.3bn in sales, up five per cent year-over-year.
    • The Internet of Things Group recorded sales of $625m, up six per cent year-over-year.
    • Its Software and services operating segments had sales of $543m, down three per cent year-on-year.
    • The Non-Volatile Memory Solution Group revenue was up 10 per cent year-on-year.
  • For the full financial year to December 2015:
    • Revenues were $55.4bn (£38.5bn), down one per cent on the year-ago quarter.
    • Net income was $11.4bn (£7.93bn), down two per cent year-on-year.
    • Earnings per share works out to $2.33.
    • The Client Computing Group collected $32.2bn in sales, down eight percent from 2014. This division provides about 60 per cent of Intel's revenue.
    • The Data Center Group booked sales totaling $16.0bn, up 11 per cent from the year-ago period. This is the wing that is keeping the night terrors away from executives.
    • The Internet of Things Group's revenue was $2.3bn, up seven per cent year-on-year. This is the group that is going to try to usurp the PC group.
    • The Software and services operating segments' revenue reached $2.2bn, down two per cent from 2014.
    • The Non-Volatile Memory Solution Group's sales were up 21 per cent from 2014.
  • Intel spent $20.1bn on R&D and acquisitions in 2015, up two per cent on 2014. (The Altera purchase completes in the next financial year.) Its gross margin over the year was 62.6 per cent, down 1.1 points from the year ago.
  • Intel expects "mid-to-high single-digit" growth of its revenues in the coming year, and $14bn from the first three months of 2016. It notes that China is hesitating to snap up its chips, which will affect sales.

If you jump off a high building, it's not the falling that will kill you – it's the stopping at the bottom. It's not the falling PC sales that will kill Intel – it's the dead stop it can't seem to do anything about. Intel CEO Brian Krzanich hopes to fashion a parachute for his business out of data center silicon and toys, and float to safety in the next decade. ®

PS: Samsung says it's started churning out "second generation" 14nm FinFET processors for smartphones. The Qualcomm Snapdragon 820, due out within the next six months, will be fabricated using the new process.


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