As part of its growth strategy, chip giant Intel (INTC 3.03%) is betting big on its non-volatile memory solutions group, or NSG for short. This segment, the company says, "offers Intel Optane and Intel 3D NAND technologies, which drive innovation in solid-state drives (SSDs) and other memory products."
At its recent Data-Centric Innovation Summit event, Intel said that it sees the total addressable market for non-volatile memory being worth $75 billion by 2022. The company had previously told investors that it expected the total addressable market for non-volatile memory products was set to grow to $55 billion by 2021.
Image source: Intel.
NSG's main customers, Intel explains, "are enterprise and cloud-based data centers, users of business and consumer desktops and laptops, and a variety of embedded and Internet of Things applications providers."
Last quarter, Intel's NSG generated about $1.08 billion in sales, growing nearly 23.5% year over year. This, according to Interim CEO Bob Swan, was "an all-time revenue record." NSG is also Intel's third-largest business by revenue (albeit a distant third), after its data center group (DCG).
Although this business is now fairly large and has been growing quickly (sales grew about 36.6% in 2017 and were up more than 21% in the first half of 2018), the segment hasn't turned in a full year of profitability since 2015.
| Metric | 2017 | 2016 | 2015 |
|---|---|---|---|
| NSG operating income/(loss) | ($260 million) | ($544 million) | $239 million |
Data source: Intel earnings releases.
Let's take a closer look at what's going on and when investors should expect the segment to start contributing to, rather than detracting from, Intel's bottom line.
Loss narrowing, profitability for 2018
Last quarter, NSG lost $65 million, a narrowing of the $110 million loss that the business saw in the same quarter a year ago. Intel said this operating loss reduction came "as [Intel's] triple-level cell (TLC) NAND and 64-layer product lines continued to ramp, driving higher unit sales and lower unit cost, which more than offset the decline in [average selling prices]."
In the first half of 2018, this segment lost $146 million, a $93 million improvement from the $239 million operating loss that it suffered in the first half of 2017.
Intel had previously committed to NSG achieving profitability for the entirety of 2018, something that Swan reiterated on the company's earnings conference call in July.
"We expect the memory segment to have full-year profitability in 2018, as we scale revenue and transition a higher percentage of our [production] output to cost-effective 64-layer 3D NAND [flash]," Swan explained.
Now, Intel hasn't specified the magnitude of the profitability that investors should expect from this segment in 2018. (Intel generally doesn't guide operating income by segment.) However, for NSG to be profitable for the entirety of the year, it'll need to generate more than $146 million in operating profit in the second half of 2018 -- a dramatic improvement from the performance that it turned in during the first half of the year.
