A close look at Intel earnings

It's been a tough few years for Intel as it suffers for the PC industry crashing to earth. For its most recent quarter, things got a little better, but there are hints of trouble elsewhere.

For Intel, it was a better quarter than it had any right to be. The first quarter of the year is always a down one from the prior, since it reflects the Christmas buying period. But Intel matched expectations, reporting revenue of $12.8 billion, as expected, and they beat analyst estimates of earnings per share by one penny.

PC client revenue fell 1 percent year-over-year, which lends credence to the opinion of many analysts that PC sales have finally bottomed out. Data Center sales rose 11 percent, a pleasant surprise given how the cloud has been stifling on-premises sales.

Intel's new Internet of Things Group reported revenue of $482 million, down 10 percent sequentially but up 32 percent year-over-year. This group consists of the new Quark processor and low-end Atom E3800. Intel recently issued new Quark processors and its IoT group is still in its infancy, so while $482 million is puny by Intel standards, it's a decent start.

The Mobile and Communications Group took it on the chin. It reported revenue of $156 million, down 52 percent sequentially and down 61 percent from $401 million a year ago. Its operating loss was $929 million, down from the $703 million loss from the same quarter last year. I can't remember Intel losing a billion dollars, at least not in the Otellini years.

This is the Atom group that's been spinning its wheels on smartphones and tablets, even as CEO Brian Krzanich said the company shipped 5 million tablet processors and hopes to hit 40 million this year. Intel is basically taking a "contra revenue" approach to mobile now. It's selling a lot more chips to Chinese "white box" tablet makers, but it's doing it at a loss.

Seeking Alpha reports (registration required) Intel will provide Shenzhen-based tablet producers $5 Bay Trail SoCs to build white box tablets and those tablets could account for half of the tablet sales this year.

Samsung and Apple have the quality products but good luck selling against $150 Android tablets. Some of them will inevitably be good quality. So it looks like Intel is taking the pricing route to compete, which might prove a Pyrrhic victory. Analysts have told me that Atom's failure to compete is no longer about power and performance, because the chips have caught up and are equal to ARM.

The issue is mobile makers don't want to let Intel take over the mobile platform like it did to PCs 30 years ago. There was a time Intel had to fend off AMD, Cyrix, VIA, NEC, National Semiconductor and IBM. It mowed them all down, and played pretty dirty at times. Samsung, et. al., do not want a repeat of that, and if Intel turns this into a price war, that won't help and might even hurt.

No doubt Intel's mobile business will be its most closely-watched this year. I have to wonder if the board and investors will continue to tolerate losing a billion dollars a quarter before finally giving up in frustration.

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