Intel Corporation Rides Out PC Declines, Needs More Tablet Growth

Amidst a slowing PC industry Intel (NASDAQ: INTC  ) is still holding its own and, in some segments, actually growing. Not all the news form the company's first-quarter earnings were great, but there was definitely some news for investors to be happy about.

PCs are still down, but servers are up
Even as IDC reported that global PC shipments were down 4.4% in the first quarter of 2014, Intel's revenue from its PC Client Group segment was down just 1% year over year, to $7.9 billion.

While no one's kidding themselves as to the direction the PC market is headed, Intel could have suffered a worse fate in its PC department had global shipments fallen at the double-digit rates they were last year. This means, though, that Intel is still vulnerable to the swings in the PC market, and a relatively modest decline right now could easily be a bigger drop later.

The upside this quarter was that the company's data center segment, which sells chips for servers, saw revenue increase by 11% year over year, to $3.1 billion. Intel's benefiting from companies selling cloud services to users, which requires a lot of storage space and major investments server chips.

New opportunities and hurdles
Intel knows that the real growth is coming from the mobile markets, which is one of the reasons why it's starting to work closely with Chinese vendors to bring more of its chips into tablets.

In the first quarter of 2014 Intel shipped 5 million tablet processors, and the company said it's making "strong progress" on reaching its goal of 40 million tablet processors by the end of the year.

While Intel is optimistic about its tablet prospects, the company still faces some serious headwinds in that market. As it targets low-end tablets, which seems apparent from strengthening relationships with Chinese vendors, Intel will run further into chip designer ARM Holdings (NASDAQ: ARMH  ) . ARM's designs are found in about 95% of all tablets and smartphones worldwide.

With Intel's mobile and communication group revenue -- which includes tablet processors -- at just $156 million in revenue for Q1, tablet processors obviously remain a small portion of Intel's revenue. As the company aims to extend its mobile reach, it'll have to convince vendors to move away from ARM's designs in favor of Intel's chips, which won't be easy.

Foolish final thoughts
Intel finished the first quarter with $1.9 billion in net income, down 5% year over year, with earnings per share at $0.40. While the company is struggling to get its mobile ship in order, Intel investors should be optimistic about the company's pursuits in the Internet of Things. This segment is poised for massive growth, with Gartner research expecting the IoT market to hit 26 billion units by 2020.

Revenue from the IoT segment hit $482 million in the first quarter, up 32% year over year. As Intel continues to purse this new strategy, and as the market grows, the company could help offset some of its PC processor shipment declines with this new technology trend, but it's going to take some time.

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  • Report this Comment On April 17, 2014, at 2:22 PM, will1946 wrote:

    I don't know about tablets; they seem to me to be no more or less a fad than pc's. However, I do know that had Intel not thrown billions out the door in their futile attempt to gain a niche in the mobile market, they would have murdered the analysts' estimates. They should get out of mobile. It's not their forte.

  • Report this Comment On April 18, 2014, at 12:47 AM, techy46 wrote:

    Intel's investing about $3 billion to gain 40 million tablet chips sales in 2014 or about 15-20% of the 230 million tablet market. That investment, via contra revenue BOM costs, will go away in 2015 as their tablet share for both Android and Windows grows. The current tablet investment will payoff 2-3x as it clears the way for the same approach in smart phones for 2015-16.

  • Report this Comment On April 19, 2014, at 12:34 AM, Theinsultedelf wrote:

    The crappy economy and the disaster called Windows8 are the major reasons for loss of sales of PC's. Tablets are nice toys, got 2 myself. A Kindle and a Google tablet, plus a phone, but they are worthless for real computing needs. Mainly only good for surfing the net, social media and very bad attempts at touch games. Touch is a crappy interface for most real programs/applications or gaming. Provide for the Touch devices for sure. There is a market but don't sabotage your majority desktop users with touch crap.

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