Intel Q1 2015 earnings, still losing ~1B per Quarter from Mobile

[AtenRa]

Intel Corporation
2200 Mission College Blvd.
Santa Clara, CA 95054-1549

News Release
Intel Reports First-Quarter Revenue of $12.8 Billion, Consistent with Revised Forecast

News Highlights:
• Flat revenue year-on-year: PC business down, offset by growth in data center, Internet of Things (IoT) and non-volatile memory businesses
• Operating income of $2.6 billion, up 4 percent year-over-year
• Data Center Group revenue of $3.7 billion, up 19 percent year-over-year; Internet of Things Group revenue of $533 million, up 11 percent year-over-year SANTA CLARA, Calif., April 14, 2015 -- Intel Corporation today reported first-quarter revenue of $12.8
billion, operating income of $2.6 billion, net income of $2.0 billion and EPS of 41 cents. The company generated approximately $4.4 billion in cash from operations, paid dividends of $1.1 billion, and used $750 million to repurchase 21 million shares of stock.

"Year-over-year revenues were flat, with double-digit revenue growth in the data center, IoT and memory
businesses offsetting lower than expected demand for business desktop PCs," said Intel CEO Brian
Krzanich. “These results reinforce the importance of continuing to execute our growth strategy.”

Q1
Key Business Unit Trends
• Client Computing Group revenue of $7.4 billion, down 16 percent sequentially and down 8 percent year-over-year.
• Data Center Group revenue of $3.7 billion, down 10 percent sequentially and up 19 percent year-over-year.
• Internet of Things Group revenue of $533 million, down 10 percent sequentially and up 11 percent year-over-year.
• Software and services operating segments revenue of $534 million, down 4 percent sequentially and down 3 percent year-over-year.

Also,

Q2 2015
• Revenue: $13.2 billion, plus or minus $500 million.
• Gross margin percentage: 62 percent, plus or minus a couple of percentage points.
• R&D plus MG&A spending: approximately $4.9 billion.
• Restructuring charges: approximately $120 million.
• Amortization of acquisition-related intangibles: approximately $60 million.
• Impact of equity investments and interest and other: approximately $60 million net gain.
• Depreciation: approximately $2.0 billion.
• Tax rate: approximately 20 percent.


Full-Year
2015
• Revenue: approximately flat.
• Gross margin percentage: 61 percent, plus or minus a couple of percentage points.
• R&D plus MG&A spending: $19.7 billion, plus or minus $400 million.
• Amortization of acquisition-related intangibles: approximately $250 million.
• Depreciation: $8.0 billion, plus or minus $100 million.
• Tax rate: approximately 25 percent for the third and fourth quarters.
• Full-year capital spending: $8.7 billion, plus or minus $500 million

Starting from Q1 2015, PC Client Group (PCG) was merged with Mobile and Communication Group (MCG) in to Client Computing Group (CCG).

Lets see what each of them were/are including.

PC Client Group:
Delivering platforms designed for the notebook (including Ultrabook™ devices and 2 in 1 systems) and the desktop (including all-in-ones and high-end enthusiast PCs); wireless and wired connectivity products; as well as home gateway and set-top box components.

Mobile and Communications Group:
Delivering platforms designed for the tablet and smartphone market segments; and mobile communications components such as baseband processors, radio frequency transceivers, Wi-Fi, Bluetooth*, global navigation satellite systems, and power management chips.

And the new CCG

Client Computing Group:
Includes platforms designed for the notebook (including Ultrabook™ devices), 2 in 1 systems, the desktop (including all-in-ones and high-end enthusiast PCs), tablets, and smartphones; wireless and wired connectivity products; as well as mobile communication components.

Now lets see what happen in Mobile Group (Tablets) in Q1,

Q1 2015 CCG Revenue was 7420M.
Q1 2015 CCG Operating Income was 1410M

Q1 2015 Margins for the CCG is just 19%

Q1 2014 PCG Revenue was 7941M
Q1 2014 PCG Operating Income was 2802M

Q1 2014 Margin for the PCG was 35%

As we can see, merging the MCG to PCG had a tremendous impact in Margins for the CC Group.

We also know from Q1 2015 earnings that

Tablet platform volumes increased 45% from Q1 2014 to Q1 2015, to 7 million units

That means Tablets didnt add more than 50-100M tops of Revenue in the new CCG in Q1 2015, and nearly zero to Operating Income.

So the difference of Operating Income from Q1 2014 to Q1 2015 is just from the Mobile losses and that is close to 1Billion.

Intel Q1 2014 earnings

Intel Q1 2015 earnings

 

[witeken]

Intel Q1 2015 earnings, still investing hundreds of millions per Quarter in Mobile

There, FTFY.

What else did you expect? Intel is still a 60% GM company, don't worry. They can even do a $15B M&A.

 

[AtenRa]

One more thing,

For the first time, the Data Center Group (DCG) Operating Income is higher than the CCG.

 

[frozentundra123456]

Invertors must not have been too disappointed, the stock made a nice move up yesterday.

 

[DrMrLordX]

Data center revenues seem to be pushing total revenues up year-over-year despite things going on in mobile, so . . . no major problems yet.

 

[2is]

They seem pretty healthy overall to me. How does AMD compare?

 

[kawi6rr]

They seem pretty healthy overall to me. How does AMD compare?

What does AMD have to do with this? Keep on topic, stop trolling.

 

[2is]

What does AMD have to do with this? Keep on topic, stop trolling.

They are the only other x86 CPU supplier and compete in the same segments Intel does. It's not off topic.

 

[ikachu]

They seem pretty healthy overall to me. How does AMD compare?

AMD announces earnings this afternoon. Analysts are projecting a 6 cent per share loss.

 

[frozentundra123456]

What does AMD have to do with this? Keep on topic, stop trolling.

Might have been less negative responses if the OP had made a more balanced thread title instead of a sensationalist one emphasizing only the negative and ignoring the overall profit. Sort of invites comparison to the competitor who consistently loses money overall or barely turns a profit in the best of times.

 

[kawi6rr]

Might have been less negative responses if the OP had made a more balanced thread title instead of a sensationalist one emphasizing only the negative and ignoring the overall profit. Sort of invites comparison to the competitor who consistently loses money overall or barely turns a profit in the best of times.

Very reminiscent of the AMD financial report that the Intel fanboy always puts out. This one at least seems less one sided.

 

[Fjodor2001]

What else did you expect? Intel is still a 60% GM company, don't worry.

It's still bad business if it continues for too long.

Just because a company makes a lot of money in some business units does not mean it's a good idea to keep units that constantly lose money.

Put it this way: Why keep it if it doesn't start showing a profit soon? The mobile unit has been given several years to prove itself, but Intel always says that next year, next product - that's when things will turn around for them. So far no signs of that at all. In fact the losses have instead been increasing over the years.

Usually shareholders have a limit too how long they will accept business units loosing money, regardless of whether or not other business units in that company are profitable or not...

 

[scannall]

It's still bad business if it continues for too long.

Just because a company makes a lot of money in some business units does not mean it's a good idea to keep units that constantly loose money.

Put it this way: Why keep it if it doesn't start showing a profit soon? The mobile unit has been given several years to prove itself, but Intel always says that next year, next product - that's when things will turn around for them. So far no signs of that at all. In fact the losses have instead been increasing over the years.

Usually shareholders have a limit too how long they will accept business units loosing money, regardless of whether or not other business units in that company are profitable or not...

Their biggest problem is that they aren't going to where the market and the customers are, they are trying to force their own ideas onto the market.

 

[witeken]

Mobile losses

You have a very short-term view on investments...

 

[mrmt]

Put it this way: Why keep it if it doesn't start showing a profit soon?

Because the world is shifting to mobile and other low power devices, so Intel has to chose between keep trying, die trying, or thoroughly change its business model.

You guys just don't get it, this isn't a retail shop, the accounting is a bit different. All these losses say is that sales of current products can't cover the R&D pipeline Intel has in development, but again, Intel wasn't investing as heavily as it is today on this segment. Now if Intel two years from now isn't making this billion dollar/quarter in R&D to make money, then you can say that they have a bad business.

All you can say today is that Intel *past* mobile strategy was wrong and didn't bring them money, but Intel isn't really hiding this fact from anyone.

 

[Arachnotronic]

You make a lot of excellent points, mrmt. The products we see today are a result of R&D spent years ago. We won't see the fruits of today's R&D spend until years down the line.

 

[burninatortech4]

AMD announces earnings this afternoon. Analysts are projecting a 6 cent per share loss.

They're up 16c a share at the moment.

 

[2is]

This one at least seems less one sided.

Does it? How?

The post focused on one company looking at losses only from a single segment... It doesn't get anymore one sided than that.

 

[sm625]

You dont need to generate revenue when you can simply borrow at low rates and use the money to buy back stock. Intel has bought back like 5% of their shares in the last year, which pushes EPS up by 5% even if they dont actually increase earnings.

There is no way intel ever makes a dime in mobile. They charge way WAY WAAAAAAAAAAY too much money for their chips to ever be relevant. Most people cannot see the value in a mobile device that costs 30 to 100% more money just because it has an intel inside. It may be a faster chip but it doesnt get them anything. And since that performance is tethered to windows that only compounds the problem. Windows is downright atrocious on a mobile device. It is an albatross around intel's neck.

 

[Arachnotronic]

You dont need to generate revenue when you can simply borrow at low rates and use the money to buy back stock. Intel has bought back like 5% of their shares in the last year, which pushes EPS up by 5% even if they dont actually increase earnings.

You know what's even better? Increasing your net income so you can buy back even more stock to supercharge EPS growth

 

[mrmt]

There is no way intel ever makes a dime in mobile. They charge way WAY WAAAAAAAAAAY too much money for their chips to ever be relevant. Most people cannot see the value in a mobile device that costs 30 to 100% more money just because it has an intel inside. It may be a faster chip but it doesnt get them anything. And since that performance is tethered to windows that only compounds the problem. Windows is downright atrocious on a mobile device. It is an albatross around intel's neck.

If Intel is to be believed the BoM, not the SoC cost is the real issue.

 

[ikachu]

The world is shifting to mobile but mobile CPUs are increasingly a commodity. I am not sure if Intel will ever be able to differentiate themselves enough to command their typically high margins in this space. In the high end of mobile, Samsung and Apple have their own CPU designs, and in the low end, cost is a bigger issue than performance.

There's an opportunity for Intel with their traditional PC customers moving into mobile (Acer, Asus, Dell, Lenovo, etc.) as well as things like Surface, but we'll see how that goes.

In the meantime, the move to mobile is increasing demand for datacenters, and that is where Intel is really growing revenue. If they don't start turning profits in mobile, you could see investors start to increase pressure to drop that business or spin it off and focus on higher margin efforts.

An example could be Broadcom; the stock price went from 32 a share to 44 a share after exiting the cellular baseband business. But, the economics are probably different in a company with fabs.

Anyway, the people making these decisions have a lot more info and make a lot more money than I do, but it'll be interesting to see how it plays out.

 

[Phynaz]

It's still bad business if it continues for too long.

Just because a company makes a lot of money in some business units does not mean it's a good idea to keep units that constantly lose money.

Put it this way: Why keep it if it doesn't start showing a profit soon? The mobile unit has been given several years to prove itself, but Intel always says that next year, next product - that's when things will turn around for them. So far no signs of that at all. In fact the losses have instead been increasing over the years.

Usually shareholders have a limit too how long they will accept business units loosing money, regardless of whether or not other business units in that company are profitable or not...

How long should AMD keep their money losing businesses?

 

[sm625]

If Intel is to be believed the BoM, not the SoC cost is the real issue.

I dont buy that at all. Look at the new macbook logic board. With 128GB of flash I bet the BoM comes out to $200 sans the CPU SoC. Slap an A8 or an atom in there and its a $500 product. Replace the CPU with a Core and it suddenly jumps up to $900? Even though the actual SoC transistor count has only increased by less than double? That just screams racket to me. And people aint gonna buy too much of it. They'll buy it if its apple, but the broader market simply will not tolerate that type of gouging. Not when you can buy something with a tegra K1 for $400 and get the same performance in the only performance category that matters for a mobile device: gaming.

 

[mrmt]

I dont buy that at all. Look at the new macbook logic board. With 128GB of flash I bet the BoM comes out to $200 sans the CPU SoC. Slap an A8 or an atom in there and its a $500 product. Replace the CPU with a Core and it suddenly jumps up to $900? Even though the actual SoC transistor count has only increased by less than double? That just screams racket to me.

You are confusing price with costs, and in costs manufacturing costs and the amortization of the R&D incurred during the project. Certainly the manufacturing costs do not double when comparing Atom to Core, but the complexity of developing core, and thus the amount of money Intel has to get to offset the development costs is far bigger in Core's case.

And all this have nothing to do with the price those products are going to fetch on the market.

And people aint gonna buy too much of it. They'll buy it if its apple, but the broader market simply will not tolerate that type of gouging. Not when you can buy something with a tegra K1 for $400 and get the same performance in the only performance category that matters for a mobile device: gaming.

Actually people are paying already for higher end processors, as Apple, Samsung and Qualcomm are showing us. K1 isn't a big example, it's a failed product on the mobile market by all metrics. It failed to gain traction and its performance is far too inconsistent to make it a good product.