Intel's (INTC 3.03%) most recent earnings report was fantastic. Following the company's positive pre-announcement on June 12, its shares saw a nice upward move. After analysts scrambled to raise their estimates following this pre-announcement, Intel yet again surprised the market with full-year guidance that came in above analyst consensus.
However, while the numbers spoke for themselves, Intel's executives offered some very important insights relevant to long-term investors. With that in mind, here are five things from the company's most recent call that Intel's management wants investors to know.
Bay Trail is taking the spotlight in PCs
Bay Trail -- which is a family of system-on-a-chip products aimed at tablets, low-cost notebooks, and low-cost desktops -- is based on the Atom architecture that Intel develops principally for the tablet and smartphone market. Since the smartphone and tablet markets both require low-power, cost-effective products, this technology seems a natural fit for the low-cost PC market.
According to Intel CEO Brian Krzanich, "[Intel's] Bay Trail SoC volume in desktops and clamshells more than doubled over the last quarter and now represents more than 60% of our Pentium and Celeron mix, and nearly 20% of our notebook mix."
Krzanich further added, "This is enabling our growth at lower price points and in new segments like Chrome-based systems without sacrificing margin."
40 million tablet chips on track to be shipped
A major strategic initiative for Intel is to ship at least 40 million chips into the tablet market this year. Krzanich gave an update on this initiative, noting that Intel is "squarely on track to [its] 40-million unit tablet goal, shipping 10 million units in the second quarter."
While Intel is incurring significant per-unit losses for its tablet chips as it needs to provide temporary contra-revenue support to offset unacceptably high platform bill-of-material costs, reaching this goal is important from a strategic perspective.
To elaborate, Intel needs to build relationships and trust with tablet system vendors, and it also needs to persuade the Android software ecosystem to target applications to Intel's X86 architecture. The sooner Intel can build these relationships, the more likely it is that Intel will see long-term mobile success, even if it's going to affect gross profit by about $1 billion this year.
14-nanometer Core M is qualified for sale
Krzanich announced on the call that "[Intel] qualified the first Broadwell-based Core M processors."
For those new to the story, one of Intel's key structural advantages is that it has a chip manufacturing technology lead over the rest of the industry. Though the extent of this lead is the subject of heated debate, Intel has been working very hard to maintain and even extend it.
Having better manufacturing technology -- though not the only factor that drives the competitiveness of a chip -- gives a vendor a pretty solid advantage over its competitors. Though Intel had originally planned to go into production on its first 14-nanometer products (the latest manufacturing technology) by the end of 2013, production was delayed until the first quarter of 2014.
Keep in mind, though, that even after manufacturing begins the design still has one more hurdle to jump -- qualification for sale. During Intel's second quarter, the first 14-nanometer design, known as Core M, qualified for sale.
This development should cement Intel's manufacturing leadership.
Intel's PC business is 60% consumer, 40% business
During the question-and-answer session of the call, CFO Stacy Smith was asked about the relative mix of consumer-oriented PC chip sales and business-oriented PC sales. This statistic is important to better understand the dynamic that is currently propping up PC sales.
Smith gave a detailed answer on the call:
If you go back four or five years, it was kind of 60%-plus business and 40% consumer, and those numbers have shifted. It's 60%-plus consumer and 40% business. In rough numbers I think that's true for the market.
Krzanich also chimed in to point out that small and medium businesses typically buy PCs through many of the same channels consumers do, making it difficult to get a precise read on the mix of consumer versus business. However, he did express confidence that Smith's estimates were reasonable.
When does LTE ramp?
Intel's mobile group has seen its revenue continue to plummet as its 2G/3G modem business continues to fall off for two reasons. First, in the low end of the handset market, 2G/3G-capable feature phones (which Intel's modem group sells chips into) are being displaced by 3G-capable smartphones.
Intel currently lacks an integrated 3G modem and proper applications processor to sell into 3G smartphones, though Krzanich noted that "SoFIA [Intel's] integrated [3G] baseband and apps processor remains on track for Q4 of this year."
Next, regarding LTE, Smith noted that qualification is set to happen early in the third quarter for a volume ramp by the end of 2014 or early 2015.
The bad news is that Intel loses out on meaningful mobile revenue this year, but the good news is that the year-over-year comparisons next year -- if Intel delivers on SoFIA and the standalone LTE-Advanced modems as promised -- should look quite good.
