Shares of Intel (NASDAQ:INTC) have slid over 20% since the beginning of the year, because of concerns regarding sluggish demand for PCs. Kirk Skaugen, senior VP and general manager of Intel's Client Computing Group, recently offered some business updates at the Citi 2015 Global Technology Conference. Let's discuss the four key points that stood out the most.
1. Intel's mobile future
At the beginning of fiscal 2015, Intel merged its mobile and PC divisions into the single Client Computing Group. Skaugen claims that the move improves efficiency in producing chips for a wider range of devices. But to me, it looked as if Intel was trying to obscure its payments to mobile OEMs for using Intel chips instead of licensed ones from ARM Holdings (NASDAQ:ARMH). Those subsidies, known as "contra revenues," caused Intel's mobile division to post an operating loss of $4.2 billion last year -- down from a loss of $3.1 billion in 2013.
Skaugen admitted that Intel's mobile business "lost billions of dollars" simply because it was "more expensive" for OEMs to build around an Intel chip than an ARM one. But looking ahead, Skaugen believes that the more cost-effective Atom x3 (SoFIA) SoC, which includes an integrated 3G or LTE wireless radio, will help narrow that gap. Meanwhile, the higher-end Atom x5 and Atom x7 will power new tablets and support new features such as its depth-sensing camera RealSense. Skaugen also reaffirmed Intel's commitment to eventually "compete profitably in mobile segments."
2. The state of the PC market
Back in March, Intel slashed its full-year revenue guidance by nearly $1 billion because of tepid PC demand. IDC's report of a 12% annual decline in worldwide PC shipments during the second quarter confirmed that bleak outlook.
Yet Skaugen points out that there are "1 billion PCs in the market that are over three years old, and 0.5 billion PCs in the market that are four to five years old," and that more demanding applications, 4K content, and security concerns will eventually persuade users to finally upgrade. Compared with older PCs, Skaugen claims that Intel's newer chips offer up to "150 times" faster processing and "30 times" the graphical horsepower.
Rising demand for 2-in-1 Windows devices represents a rare bright spot in the PC market. Skaugen claims that "56% of the people" who go shopping for a new PC or tablet leave the store with a 2-in-1 device, which combines "the best of a notebook and the best of tablet in one device". Strong sales of Intel chips for these devices can offset weaker demand for laptop and desktop chips.
3. The evolution of desktops and workstations
Skaugen stated that Intel also remained dedicated to improving desktop PCs and workstations. In desktops, Intel is refreshing its high-end gaming towers for PC gamers, who account for 1.2 billion of the 1.8 billion gamers worldwide. The arrival of more graphically demanding games could boost demand for more powerful desktops among gamers, which might offset softer demand among mainstream and enterprise customers.
In August, Intel introduced its first "workstation-grade" Xeon CPUs for laptops. Skaugen declared that these portable workstations, which weigh "under six pounds," offer the same performance that a 61-pound tower offered just three years ago. This improvement enables enterprise customers to carry around mobile workstations for the first time, which Skaugen expects to command "significantly higher" average selling prices. Skaugen admits that sales volume will be light, but that the niche still represents "a good opportunity for margin" expansion.
4. The future of computing
Lastly, Skaugen discussed Intel's long-term computing goals -- to eliminate wires and passwords, and to improve interactions with voice and gestures. Skaugen believes that the combination of wireless charging and wireless gigabit technology, or WiGig, which is basically a faster version of Wi-Fi, will eliminate the need for bundles of cables in the near future. To capitalize on that growth, Intel launched its first WiGig chip and WiDi, a wireless display that follows devices across rooms.
RealSense cameras will also scan faces to replace passwords -- a feature already included in Windows 10. Once logged in, Intel uses its True Key security technology to enable users to login to websites with their faces as well. That technology, combined with improved speech-recognition services, could streamline human interactions with PCs.
The bottom line
In a previous article, I highlighted three reasons to avoid buying Intel stock -- the weakness of the PC market, a possible performance plateau for its CPUs, and a lack of financial clarity in reporting its operating income and losses. Skaugen's presentation offers an encouraging glimpse Intel's long-term future, but it still doesn't adequately address those near-term challenges.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.