Although Intel (INTC -0.10%) has made it clear that it's trying to transition itself from being a PC-centric company to a data-centric one, the reality is that the chip giant derives large portions of both its sales and profits from the personal computer market. In fact, interim CEO Bob Swan said in July that the company's client computing group (CCG) -- the company's PC-centric business unit -- "continues to be an extremely important source of [intellectual property], scale, and cash flow for our company."
Indeed, while Intel's dependence on CCG has come down significantly in recent years, with the segment dropping from 66% of the company's sales in 2013 to just 54% in 2017 (CCG revenue in absolute dollar terms dropped just 1.7% from $34.6 billion to $34 billion during that time), it's still a big part of Intel's business and investors should keep a close eye on how it performs.
Intel executive Anand Srivatsa holding an eighth-generation Core processor. Image source: Intel.
Let's take a look at how CCG did in the second quarter of 2018.
Solid revenue growth
Intel's CCG raked in $8.7 billion in revenue in the second quarter of 2018, up nearly 6.3% year over year. This represented an acceleration from the roughly 3.1% year-over-year revenue growth that CCG enjoyed in the first quarter of 2018.
Intel breaks down CCG revenue into two subcategories: platform and adjacent. Platform revenue, the company says, "incorporate various components and technologies including a microprocessor and a chipset, a stand-alone [system-on-a-chip], or a multi-chip package."
"Our remaining primary product lines are incorporated in 'adjacency'," Intel explains. That includes products like Wi-Fi chips and cellular modems.
Intel's CCG platform revenue, which made up 92.4% of CCG revenue last quarter, was up more than 5.6% year over year. Notebook platform sales grew 5.6% year over year thanks to a 3% boost in unit shipment volumes and a 2% rise in average selling prices. Desktop platform revenue saw approximately 6.4% growth, thanks to a 13% pop in average selling prices being partially offset by a 9% plunge in unit shipments.
In case you were wondering, a little over 63% of CCG's platform revenue last quarter came from notebook platforms while nearly 37% came from desktop platforms. This shouldn't be terribly surprising considering that notebook computers are more popular than desktop computers.
Intel's CCG adjacent revenue came in at $663 million in the quarter (approximately 7.6% of CCG revenue), up 14.5% year over year and accelerating from the roughly 4.5% growth that it saw in the first quarter of the year.
Slightly faster operating income growth
Intel's CCG operating income rose 6.9% to $3.2 billion in the second quarter, slightly outpacing revenue growth. Operating margin for the business -- that is, the percentage of revenue that the company turned into operating profit -- was 37%, up slightly from about 36.8% in the year-ago quarter.
"Operating margin percent was flat [in CCG] year over year, as the customer preference for high-performance products drove a strong mix and higher [average selling prices], offset by 10-nanometer ramp cost," Swan said on the call.
According to the company's most recent quarterly filing, CCG's operating income faced a $175 million headwind relative to the year-ago quarter thanks to "period charges primarily associated with engineering samples and higher initial product costs from our 10nm products."
