Where Is Intel Going in 2014?

Intel (NASDAQ: INTC  ) got a new CEO last May. Brian Krzanich is only the sixth CEO in Intel's 45-year history, as well as the third ex-COO in a row to take the chip giant's largest corner office.

Krzanich has more than seven months of CEO experience under his belt now, and 2014 will be the year when he's ready to fully implement his own strategy on top of predecessor Paul Otellini's vision. So, what will be different in 2014 -- and beyond?

INTC Chart

INTC data by YCharts

When Krzanich opened up his first Intel investor day last month, he brought a new slogan to the party: "If it computes, it does it best with Intel."

As PC group chief Kirk Skaugen put it at another conference last week, the vision is to provide the best computing solution on every platform available. "It's going to be done best on IA, across every operating system and across every form factor, from the smallest Internet of things all the way to the highest end supercomputers in the world," he said.

Expect Intel to trumpet this new slogan from all corners in 2014. The company wants to be in everything, everywhere, all the time -- at least as long as you care about a premium computing experience.

Intel is already the unquestioned leader in main processors for PC systems and mid-tier servers. Advanced Micro Devices (NYSE: AMD  ) is making a spirited play on the laptop market with its "accelerated processing units," or APUs. These chips add high-powered-graphics processing and the potential for other specialized improvements alongside the basic "central processing unit," or CPU, which has been powering computers since time immemorial. The APU philosophy could also give AMD a serious beachhead in the high-margin data-center market, where corporations gladly pay a premium to get the right solution for every server system.

But AMD's server ambitions are still just that -- ambitions without a bottom-line payoff. Intel will hardly sit still and allow AMD to run wild in Intel's most profitable market. If AMD's strength lies in producing custom chips for specialized workloads, then Intel isn't far behind.

Intel CEO Brian Krzanich. Image source: Intel

At the investor event, Intel showed just how far it can go toward filling very specific needs. In 2013, eBay (NASDAQ: EBAY  ) wanted a low-power processor to go with its proprietary cooling solutions, and Intel stepped up with a custom chip that raised peak performance by 50% without lifting the heat and power needs. Facebook (NASDAQ: FB  ) wanted a custom chip for its picture-storage services, where you need high performance at the drop of a hat with long periods of low-power snoozing in between. So, Intel delivered not one but two custom chips to meet Facebook's very specific needs.

If Intel is both willing and able to deliver ultraspecific solutions for eBay and Facebook right now, I think it's safe to assume that you'll see a flood of custom processors coming out of Intel's factories in the next few years. Intel will do what it takes to keep its data-center business healthy, no matter what custom-tailored chips might be emanating from AMD's factories.

In the tablet and smartphone markets, Intel has a lot of work to do. The mobile sector is utterly dominated by platform builder ARM Holdings (NASDAQ: ARMH  ) and its plethora of chip-designer partners.

Intel's push into mobile markets will take years, of course. Intel's finest mobile chips may crush ARM alternatives in raw performance, and they are catching up when it comes to battery life and performance per watt. But tablet and smartphone makers have been building devices around ARM chips for years, so there's a learning curve to deal with before switching to Intel -- even if Intel's products turn out to be better in every way.

So, I don't expect Intel to make significant mobile sales in 2014, because inertia is a tough road block to overcome. That doesn't stop Intel from working on its mobile products and reputation, and the company might surprise me -- and other Intel investors -- with a big-name-mobile contract in 2014. But next year looks like a transitional year for Intel's mobile strategy, where Krzanich gets to build the foundation for a solid long-term strategy.

Intel's long-term vision has crystallized and Krzanich will bring his considerable manufacturing expertise to bear on the entire process. He's very open to making revenue streams out of head-to-head rivals by manufacturing third-party chips on Intel's advanced processes.

Looking more specifically at 2014, Intel agrees with third-party analysts that PC unit sales are trending down next year. Enterprise PC systems are stabilizing while consumers keep turning toward tablet alternatives. The company hopes to win market share in the mobile sector over the next two years. Data center sales are on track for about 13% revenue growth in 2014.

All these moving parts should combine into revenue growth "well into the teens" in 2014, while operating margins are expanding. Both of these projections point to improvements over the current state of affairs:

INTC Revenue (TTM) Chart

INTC Revenue (TTM) data by YCharts.

In short, Intel investors like yours truly shouldn't expect huge gains in 2014. The company will be too busy building its long-term strategy to focus on short-term-investor gains. That sounds like an amazing time to get into the stock with a decades-long-investing horizon.

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  • Report this Comment On December 09, 2013, at 1:28 PM, KenLuskin wrote:

    Regarding Semi-custom chips:

    ARM architecture allows AMD to MORE quickly iterate 64 bit ARM server chips, that are customized to the needs of Cloud customers.

    AMD's SeaMicro dense server architecture allows lower power, lower end, lower cost AMD chips compete effectively against Intel's higher power CPU focused server chips.

    Keep in mind that most of Intel's server chips use the AMD 64 architecture... YES! Intel failed in their 64bit design called Itanium, and forced AMD to license to them.

    Now that AMD can NO longer be out muscled in the manufacturing thanks to the rise of TSMC, Glo Glo, and Samsung... Its a whole new ball game for AMD.

    Intel fanboys have talking about the process lead for the last 5 years.. but it has NOT helped Intel in mobile.

    NOW that TSMC and Samsung are large enough to compete with Intel in manufacturing... Intel's process lead will diminish over the next few years.

    AMD will take back at least 25% of the server market over the next few years!

    GRAPHICS are the NEW ERA in computing!

    AMD will crush Intel by integrating their GPU advantages over the next 5 years.

    Intel's manufacturing weapon has been neutralized by the rise of TSMC and Samsung!

    Intel can NO longer damage AMD by out manufacturing them.

    ALL the major trends favor AMD, and NOT Intel!!!

  • Report this Comment On December 09, 2013, at 3:08 PM, KenLuskin wrote:

    AMD is the best value in the Chip area:

    ACTUAL ANALYSIS:

    PC division:

    1) COST control producing profits

    AMD proved in Q3 that PC sales could decline 6% from the previous quarter, yet they produced a $22 million profit in that division against a loss in the previous quarter.

    2) AMD is prepared for a further 10% decline in their PC business in 2014. AMD is prepared to EARN profits despite lower PC sales, and or lower market share.

    3) A 10% decline in PC sales would put them at about $2.3 billion in 2014.

    4) AMD 2014 PC sales at $2.3 billion will only be about 1/3 of total sales.

    5) Therefore focusing on PC sales at AMD is a major mistake, but its all the bashers can talk about.

    6) AMD will be able to at least break even in the PC area, based upon their recent proven ability to cut costs.

    GPU division:

    1) In Q4 AMD brought out new top end products that rival Nvidia's significantly more expensive top end products. Nvidia was forced to significantly cut the price of its high end products.

    2) If anything AMD will gain market share, while Nividia will see their main profit generating products drop dramatically in price to compete.

    3) I will assume that AMD breaks even on GPUs, since they have proven ability to do so.

    CONSOLE area:

    1) AMD is in all 3 of the consoles. Demand for new PS4 and Xbox is far exceeding supply.

    2) CFO stated at Credit suisse conference that there will be 2014 consoles sales of appx. 40 million, with about half from the new consoles.

    3) AMD will get revenues/royalties from ALL console sales in 2014 except the PS3.

    4) CFO stated that yield and margins are increasing dramatically from the Q3 launch ramp.

    He did NOT argue with a 20% net profit margin in 2014.

    5) At appx. $100 revs per new consoles= $2 billion in revs. 20% profits= $400 million in profits from new consoles.

    6) AMD gets royalties from Xbox 360 sales and rev/kprofits from WiiU sales. Net profits will = about $100 million in 2014. based upon $15 per console sold.

    7) TOTAL Console profits= $500 million in 2014

    8) AMD is well positioned to get additional console TV deals from many other PC companies that want to enter the living room.

    SERVER Area:

    1) Everyone with any knowledge of Cloud server demand acknowledges that DENSE servers will take at least 25% market share in a few years.

    AMD's SeaMicro has proven by VERIZON is the most versatile and cost efficient architecture.

    2) DENSE servers do NOT require high end Intel chips to out perform servers that do use high end Intel chips.

    3) AMD created the 64 bit architecture that Intel licensed and uses in most of their server chips.

    4) ARM 64 bit architecture is optimized for the exact needs of cloud providers+ high efficiency with low power use.

    5) NONE of the handful of companies that will compete in the 64 bit ARM server market have any real experience or success in creating 64 bit server chips.

    6) AMD created 64 bit server chips a DECADE ago.

    7) Besides Intel, AMD is the only other successful server chip company.

    8) AMD is positioned for huge server growth starting in the 2nd half of 2014 and continuing for the next 5 years.

    9) AMD's server division will start to contribute significant revenue and profit growth in the 2nd half of 2014. I estimate appx. $500 million in 2nd half revenues in the server area with 20% net profits= $100 million in profits.

    TOTAL AMD for 2014

    1) PC = $2.3 billion in revs with no profits

    2) GPU= $1 billion in revs with no profits

    3) Server= $850 million revs , $100 million profits

    4) Console= $2.2 billion revs, $500 million profits.

    TOTAL : 6.35 billion revs, $600 million profits= 80 cents per share.

    Top line 2014 revenue growth of 27% over 2013, with massive earnings growth.

    AMD will be seen as a CLOUD play in 2014, and the PE will be HUGE.

  • Report this Comment On December 09, 2013, at 4:37 PM, whyaduck1128 wrote:

    Nice cheerleader outfit, Ken.

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