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3 Things Intel Corporation Management Wants You to Know

By Ashraf Eassa - Updated Jul 31, 2017 at 3:38PM

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Intel management talked about the strength in its memory business, next-gen cellular modem shipments, and the ramp-up of its 10-nanometer technology.

On July 27, microprocessor giant Intel (INTC 1.46%) released its second-quarter earnings results, and they were solid. Revenue and profit beat expectations, and the company bumped up its full-year guidance for revenue and earnings per share.

Considering that several times over the last several years, Intel was forced to reduce its financial guidance, it's refreshing and encouraging to see the company raising it.

The rear side of an Intel processor

Image source: Intel.

In addition to reporting these solid results, on a conference call with analysts, Intel executives offered quite a bit of insight into the state of the business and its plans.

Here are three items from the call that stood out for me.

1. A strong memory business

In 2015, Intel announced that it would be converting its logic manufacturing plant in Dalian, China, into one producing non-volatile memory. The factory is ultimately expected to build 3D NAND flash memory, which is used in both consumer and enterprise solid-state drives (Intel's focus is more on the enterprise side), as well as Intel's 3D XPoint memory technology.

Since then, Intel has ramped up its investments in non-volatile memory (in terms of both research and development, and spending on capital equipment), which has led its non-volatile-memory solutions group (NSG) to post significant losses for quite a while.

The losses continued this quarter, even on the back of a 58% surge in revenue, but they narrowed from $224 million in the same period last year to just $110 million.

However, these numbers don't tell the entire story.

Per CEO Brian Krzanich, the company's NAND flash business "returned to profitability this quarter ahead of our earlier estimate" and the team is planning for the business "to remain profitable for the balance of the year."

Speaking about the NSG segment as a whole -- which is currently being dragged down by high spending on 3D XPoint technology -- Krzanich said that the company now expects "the entire NSG segment to be profitable for the full year of 2018, versus our prior end-of-2018 target."

Considering that this business has lost $224 million over the past six months alone, the segment being profitable for the whole of 2018 should help provide Intel with a nice tailwind to its operating income and, ultimately, net income.

2. Shipping of the next-generation cellular modem begins

Krzanich said that the company "began shipping" its XMM 7480 LTE modem during the quarter.

The XMM 7480 is expected to power some of the next-generation iPhone models, just as Intel's prior XMM 7360 cellular model powers some of the current iPhone 7 models.

Though Intel's cellular modem business is a rather small part of its overall business, Intel is part of the iPhone supply chain now; to the extent that the new iPhone does well in the marketplace, Intel's financial results stand to benefit.

3. 10-nano progress

Intel's current product portfolio is built using derivatives of the company's 14nm manufacturing technology, introduced in the second half of 2014. Since then, Intel has enhanced the performance and power capabilities of the 14nm technology, but those enhancements didn't entail reductions in chip area.

Such a reduction in chip area, which is supposed to allow Intel to put more features and functionality into its chips, is expected to come with the company's upcoming 10nm technology.

Krzanich said that the company will "be shipping our first 10-nanometer products near the end of the year, beginning with a lower-volume SKU [stock keeping unit] and followed by multiple SKUs and a volume ramp in the first half of 2018."

He then provided some additional color on its 10-nanometer plans: "[Y]ou'll see a variety of SKUs progressing through 2018 as we ramp the 10-nanometer products, starting with the ... simpler SKUs at the beginning, going all the way through the high-performance, high-complexity SKUs toward the middle and the back half of the year."

This, Krzanich added, represents a "traditional ramp" for a new product family. And he's right.

Ashraf Eassa owns shares of Intel. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.

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