On Jan. 26, microprocessor giant Intel (INTC 0.74%) announced its financial results for the fourth quarter of 2016 and, by extension, the entirety of 2016.
A rendering of an Intel seventh-generation Core processor. Image source: Intel.
The company had previously guided to $15.7 billion in revenue for the quarter and gross profit margin of 61%, representing sequential declines from $15.8 billion and 63.3%, respectively.
Intel's actual financial results were much more impressive; the company reported $16.4 billion in revenue for the quarter and a gross profit margin percentage of 61.7%, up from $14.9 billion and down from 64.3% in the prior year, respectively.
For the full year, Intel raked in $59.4 billion at 60.9% gross profit margin -- a little above the midpoint of its long-term gross margin range of 55% to 65%, though down 170 basis points year over year.
This upside appears to have been driven, ironically enough, by the company's Client Computing Group (CCG) business, which derives the bulk of its revenues from sales of components into personal computers, generally viewed as a declining market.
Let's take a closer look at the company's revenue and profit performance in this segment.
Solid improvements in revenue and profitability
Intel reported that total CCG revenue hit $9.13 billion in the most recent quarter, up from $8.76 billion in the same quarter a year-ago -- a respectable 4% year-over-year boost.
Operating income vastly outpaced revenue, though, with this figure growing from $2.72 billion in the year-ago quarter to $3.52 billion in the most recent quarter -- up almost 30% year over year. Management attributed this to lower operating expenses, a "richer product mix," and improved product margins as 14-nanometer chip manufacturing yields improved. The same story has been playing out all year in CCG.
Now, it's worth noting that Intel reported that the "platform" portion of its CCG revenue, which consists of sales of processors and chipsets, were roughly flat, at $8.36 billion in the prior year compared with $8.4 billion in the most recent quarter. But its "other" segment -- which includes complementary products, such as wireless chips -- saw revenues more than double to $773 million, from $356 million a year-ago.
It is likely that this large boost in "other" revenue within CCG was due primarily to the ramp-up of the company's XMM 7360 cellular modem in the Apple (AAPL 0.06%) iPhone 7 and iPhone 7 Plus devices.
Good full-year results
For the full year, Intel reported that CCG revenue was up 2%, while expectations going into the year were for a decline, with operating profit up a smidgen more than 30%. Platform revenue was roughly flat, at $30.75 billion versus $30.68 billion, with "other" revenue surging from $1.54 billion in 2015 to $2.16 billion in 2016.
The iPhone win clearly contributed to a large part of the "other" segment growth here, but the driver of the increased platform revenue is a little bit subtler.
Indeed, Intel reported that shipments of its notebook computer processors declined by 1% year over year and that shipments of its desktop computer processors dropped by 6%. Key to keeping platform revenues flat was a 2% increase in notebook platform average selling prices, as well as a 2% increase in desktop platform average selling prices.
What's happening, then, is that computer makers are selling fewer computers than they were before, as evidenced by the notebook and desktop platform unit shipment drops, but the computers that they do sell, on average, contain more expensive processors.
