By Therese Poletti, MarketWatch
Intel CEO Brian Krzanich shows off a Lenovo 2-in-1 laptop and tablet with Intel processors.
SAN FRANCISCO (MarketWatch) — Now that Intel Corp. is giving out more information about its business units, investors have learned some sobering news: The personal-computer business is still the chipmaker’s bread and butter.
In its first-quarter earnings Tuesday, Intel’s
financial results demonstrated that the PC business is still its dominant source of revenue, even as it expands into mobile phones and tablets with aggressive moves. As the PC market drastically slowed last year, with consumers buying more tablets and smartphones, Intel ratcheted up its efforts to expand beyond the core PC business. And at the Consumer Electronics Show earlier this year, Chief Executive Brian Krzanich focused on the so-called Internet of Things as another potential growth area.
So far, though, Intel’s revenue is paltry from mobile and the Internet of Things, an emerging area where nearly every device or appliance will be connected to the Internet. In the first quarter, Intel’s revenue from mobile and communications chips was $156 million, down 62% from a year earlier, and revenue from the Internet of Things group was $482 million, up 32%. Chips for PCs, in contrast, had revenue of $7.9 billion, and chips for servers and data centers climbed 11% to $3.1 billion. Intel’s total revenue for the first quarter was $12.8 billion.
But what was more concerning to investors was the fact that Intel’s mobile business is still losing heaps of money, in part due to marketing costs — Intel offers manufacturers who buy its tablet chips rebates.
In the first quarter, mobile losses swelled to $929 million. In 2013, Intel lost $3.15 billion in its mobile communications group, as it has tried to make inroads to compete in smartphones and tablets, where chips based on designs from ARM Holdings Plc
“How do you think about this business,” Barclay’s Capital analyst Blayne Curtis asked on Intel’s conference call Tuesday. “You’re a bit behind. You’re entering from the low end and that pricing seems quite tough. You’re facing subsidies that you have to do on the tablet side. Are there some milestones that you look at to get this business back to profitable? Or maybe would you consider this strategic enough that you’d consider continuing to run this as a loss?”
Krzanich, who took over as CEO from Paul Otellini last May, said Intel doesn’t enter into businesses thinking it’s going to lose money. “We believe we have a road map to get to profitability in that business,” he said. Those milestones are based on the launch of new versions of its chips, starting in the current quarter, and into the second half of 2015 and 2016. “Those are the milestones to me that will lead to profitability, long term.”
This quarter, PCs started to show signs of stabilization, with revenue in the PC client group falling only 1% from a year earlier, so many investors took heart in that news. Still, it will take time.
As Bernstein Research analyst Stacy Rasgon said in a note Tuesday: “Mobile economics are currently awful. It is imperative that the company grow revenues to the point of at least covering some of their massive opex [operating expenses] spend. However, we have yet to hear any concrete evidence that this is in the cards. 2014 is not the year, nor is 2015; are we waiting for 2016 or even later?”
Whichever year it is, one thing is for certain: Intel is still wedded to its core PC business, at least for the foreseeable future.
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