Intel Burns Nearly $1 Billion on Mobile in Q1

Intel burns through nearly $1 billion in mobile during the first quarter of 2014. When should investors expect a payoff?

Apr 19, 2014 at 4:00PM

As a longtime Intel (NASDAQ:INTC) shareholder, it has been tough watching this company stumble again and again when it comes to smartphones and tablets. I still vividly remember the presentations the company showed investors back at the 2011 investor meeting. The idea was that Intel was finally going to take mobile (that is, smartphones and tablets) seriously. Unfortunately, while Intel seems to be putting in a massive investment into mobile, it still can't get the right products out the door, much to the chagrin of long-term shareholders.

Burn, baby, burn!
In the most recent quarter, Intel's Mobile and Communications group lost a staggering $929 million. Now, keep in mind that Intel shipped only 5 million tablet units during the quarter, so the majority of this loss has nothing to do with the "contra-revenue" program that it laid out last November to gain tablet share. No, this is an extremely elevated level of R&D as a result of the company's push into mobile.


Intel's P&L by division for the last several quarters. Source. Intel. 

Of course, there's nothing wrong with spending to get the right products out -- Intel, fortunately, can afford to do this. The problem is that Intel has increased its R&D, mostly for mobile, dramatically over the past three years, and here in 2014 we're not even close to a payoff. This is a huge problem that investors can no longer afford to ignore.

Hey, what ever happened to those lofty 2013 projections?
Back in the May 2012 investor meeting, Intel laid out some pretty aggressive expectations for its "Other IA" group (which is now separated into several categories, including Mobile and Communications). The idea was that from a respectable $4 billion revenue base in 2012, the company would grow that by $1.5 billion to over $5.5 billion and cut the operating loss significantly. The operating loss for the Mobile and Communications group was $1.776 billion in 2012.


Intel's expectations for its mobile group didn't exactly pan out. Source: Intel. 

That, of course, didn't happen, with the mobile and communications group losing a staggering $3.175 billion during 2013. Intel grew R&D considerably but sales actually declined from $1.791 billion to $1.375 billion. The majority of this decline came about because Intel's 2G/3G modems saw a steep fall-off as shipments of LTE-enabled smartphones, powered by Qualcomm (NASDAQ:QCOM) discrete Gobi modems and Snapdragon apps processors, rose considerably. Intel's lack of an LTE modem to pair with its applications processor solution during 2013 was disastrous.

It'll be 2015 before progress is made
On the most recent earnings call, when pressed about the massive operating loss, CEO Brian Krzanich claimed that a "leadership" product stack in 2015 would be the key to significantly reducing that operating loss and eventually getting to profitability. However, we've heard this many times before. For example, in some of Intel's marketing materials, it has tried to claim that its chips already dramatically outperform those of its competitors.


These benchmarks make Intel's recently released Z3480 look great. Where are the design wins?. Source: Intel. 

Now, while these benchmarks are hardly representative of general-purpose CPU performance (more on that another time), the point is that Intel claims that it already has leadership products. This leads to the following quagmire where exactly one of the following is true:

  1. Intel's products aren't actually leadership products. In this case, Intel's chips are missing critical functionality/integration or simply aren't at the level of performance that OEMs want. This is the more likely situation.
  2. Even with leadership products, nobody wants Intel's chips. The other possibility that some have mentioned is that the OEMs simply don't want to work with Intel on phones and tablets because they prefer to have a Qualcomm/MediaTek duopoly. Competition is good, and if somebody offers you a better part for cheaper, it's hard to turn down. This is unlikely.

So we have a situation where after three years and over $5 billion of operating losses incurred, Intel's mobile product pipeline still isn't really good enough to compete for and win sockets profitably. Chips take time, but if Intel's 2015 offerings really don't turn out to be leadership, then something is horribly, horribly wrong.

Foolish bottom line
Intel's non-mobile businesses generate nearly $20 billion in operating income when taken together. Even a modest 10 times multiple to that would suggest a market capitalization north of $200 billion -- or a $40 stock price. Unfortunately, the PC market is still on the decline, and the mobile losses are wiping out a huge chunk of the company's operating profit. Once it's clear that Intel's mobile group can actually execute as promised, the market will be more willing to forgive these losses and the stock could trade north of $30. Until then, though, it'll all be about PCs and servers.

The biggest thing to come out of Silicon Valley in years
If you thought the iPod, the iPhone, and the iPad were amazing, just wait until you see this. One hundred of Apple's top engineers are busy building one in a secret lab. And an ABI Research report predicts that 485 million of them could be sold over the next decade. But you can invest in it right now, for just a fraction of the price of Apple stock. Click here to get the full story in this eye-opening new report.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel and owns shares of Apple, Intel, and Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers