Intel Q3 15A – Sober tone.

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Intel has still not weaned itself off PCs and data centres.

• Intel reported reasonable Q3 15A results as the data centre, IoT and memory all helped to offset the ongoing weakness in PCs.
• Q3 15A revenues / EPS were $14.5bn / $0.64 slightly ahead of consensus at $14.2bn / $0.61 as the mix of the 6^th generation Skylake processors was a little stronger than expected.
• Revenues from PCs was down 7% YoY offset by the Data Center Group with 12% YoY growth and Internet of Things (IoT) with 10% revenue growth.
• IoT remains very small at $581m in revenue, leaving almost all of the recovery legwork to be done by the Data Center Group.
• Guidance for Q4 14E was for revenues / implied net income to be $14.3bn – $15.3bn / $3.1bn, slightly ahead of consensus at $14.8bn / $3.0bn.
• This guidance leaves Intel in line with its prior full year guidance that calls for a 1% decline in revenues compared to 2014A.
• This guidance makes it very clear that no one is expecting Windows 10 to cause a bump in PC shipments while data centres are going to grow albeit at a slower pace than before.
• This sets a sober tone for the rest of the Q3 15 reporting season which really swings into gear next week.
• Intel’s mobile business remains very weak but the exit of Marvell, Nvidia, Ericsson and Broadcom has reduced competition.
• However, the real problem remains that the big players are increasingly making their own silicon meaning that the merchant market is shrinking.
• Intel has quite good share in the tablet market, but I think that this is not representative of its prowess as it has been effectively paying customers to take their chips away.
• Intel has pledged to reduce the “subsidies” on its chips and I am pretty sure that market share in wireless will fall in step with the subsidies.
• Furthermore, Qualcomm has now entered the data centre market with the first really credible ARM based chipset which could really pressure Intel in the long-term although it must first overcome the software issue (see here).
• The net result is a fairly sober outlook for a company which I think is still struggling to diversify itself away from fixed computing into mobile which is where all the action is.
• Until it can see some traction here, it will not really be the master of its destiny with its fortunes rising and falling in line with two key markets that it dominates.
• I am hopeful for a big product cycle in the PC market but think that it could still be a while before that happens.
• Consequently, I continue to prefer Microsoft which has reinvented itself, is seeing traction and is just as exposed to a PC cycle.