Every company has one number that defines its success more than any other. For Intel (INTC 0.91%), the world's largest dedicated chipmaker, that number is...
314.4 million
That number represents the number of PCs that have been sold worldwide over the past four quarters. Intel makes about eight of every 10 chips that power consumer PCs, and sales of PC chips accounted for more than 60% of its total revenue as of the third quarter of 2014. Intel has been making its fortunes in PCs for 30 years, and it remains hugely reliant on them today. However, the PC market has not been the picture of health in recent years:
Period |
Total PC Sales |
Intel PC Revenue |
Growth Rates (PC Sales ... Intel Revenue) |
---|---|---|---|
Trailing 12 months |
314.4 million |
$34.4 billion |
(0.5%) ... 4% |
2013 |
316.0 million |
$33.0 billion |
(10%) ... (4.3%) |
2012 |
351.1 million |
$34.5 billion |
(0.5%) ... (3.1%) |
2011 |
352.8 million |
$35.6 billion |
0.5% ... 12.8% |
2010 |
350.9 million |
$31.6 billion |
14.7% ... 20.7% |
2009 |
305.9 million |
$26.2 billion |
5.2% ... (6.4%) |
2008 |
290.8 million |
$28.0 billion |
N/A |
Worldwide PC sales have only increased by 8%, and Intel's PC segment revenues are only up by 23%, from 2008 to the trailing-12-month period. This is in spite of the fact that the global economy has ostensibly recovered from a brutal recession that crushed PC sales (and just about everything else) in 2008 and 2009. Both PC sales and Intel's PC segment revenues have dwindled since both peaked in 2011, and it seems to be a widely held opinion that PC sales have gone as high as they can go.
You can see this peak rather clearly on the following chart, particularly on Intel's bottom line. Intel has yet to reclaim the all-time highs in EPS and free cash flow that it set at the end of the 2011 fiscal year, and revenue has been essentially flat since that time, and it's actually lower than 2011's results when accounting for inflation:
Intel's trailing-12-month PC segment revenue is 3% lower today than it was at the end of 2011, which is a solid performance -- though nothing to really cheer for -- when compared to the 11% decline in overall PC sales over the same time frame.
The main reason Intel's overall revenue has grown at all since the end of 2011 is that its server segment has nearly doubled its sales since 2008:
Period |
Intel Server Segment Revenue |
Growth Rate |
---|---|---|
Trailing 12 months |
$13.3 billion |
18.3% |
2013 |
$11.2 billion |
6.9% |
2012 |
$10.5 billion |
6.1% |
2011 |
$9.9 billion |
14% |
2010 |
$8.7 billion |
34.8% |
2009 |
$6.5 billion |
(2.1%) |
2008 |
$6.6 billion |
N/A |
is even more dominant in servers than it is in PCs, as more than 95% of all servers built worldwide have Intel inside. The server market is increasingly driven by major online companies that build custom servers, and a shift toward cloud computing is likely to continue this trend for some time. However, it's still clear that Intel's server segment has a long way to go before it can catch up to its PC segment, as PC chips still account for two and a half times as much revenue as server chips. It doesn't look like Intel's making a lot of headway on the mobile front, either. It recorded only one million dollars in revenue from its mobile segment in the third quarter, and has sold only $208 million worth of mobile products since the start of 2014.
Intel boasts that it should sell 40 million tablet chips this year. This seems like something that would improve the segment's sales results in a hurry, but the long-awaited beachhead in smartphones needs to be achieved sooner rather than later. Nearly a billion smartphones were sold in 2013, more than triple the number of PCs, and Intel's chips were barely in any of them.
To justify investor optimism, Intel must do two things: It must continue to grow its server sales more rapidly than its PC sales deteriorate, and it must find a stronger and more profitable footing in mobile, which has produced multibillion-dollar operating losses in each of the last two years.