Intel Earnings Commentary
PCs- Intel showed a strong growth trend in the PC market with greater than expected gains in notebooks (9%) and desktops (8%) YoY. This is not surprising as we’ve been predicting the renewal of many older machines, particularly in enterprises and for business users. We expect the PC market to continue to grow for at least the next 3 quarters as more machines are upgrades/replaced, and the investment in new tablets continues to taper off with increasing saturation.
Data Center – Buoyed by continuing push to the cloud, Intel showed a strong growth (9%) YoY. We expect this trend to continue, even as the lower end server market heats up dramatically, driven by ARM-based low power/low cost systems. We expect Intel to capture a significant share of this low end of the market with specifically targeted chips that will compliment the traditional leadership in mid to higher end servers.
Mobile and Communications – this is one area where Intel is doing quite badly. But this was expected, as they will not be able to compete in any major way with the ARM-based suppliers until they have a fully 4G/LTE SoC late this year and into next year. Intel’s numbers will likely continue to decline until they achieve volumes with the next generation of SoCs targeting primarily the tablet space first, and then later next year the phone space. Design wins are showing momentum, but they are not yet competitive with others in this space (e.g., QComm). We expect this to turn around within 9-12 months.
Margins – the increase in margins to 64.5% shows a major increase in the efficiencies of their operations as new management has focused on this aggressively. Together with continued R&D and manufacturing investments, and stock buy-back, this should put them in good stead to ride out any market fluctuations.
Overall, this has been a very good quarter for Intel and shows that despite what some believed, Intel in not down and out in a changed market. They are reinventing themselves to the needs of the new market realities, and will remain a major force in defining the next generations of mobile and IoT markets.
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