As stock market shudders, Intel’s IoT Group still hasn’t hit $1bn/Q

Intel’s Q3 results were record-breaking, totaling $19.2bn across the entire business, and up 19% compared to Q3 2017. It beat the investment community’s average expectation by about $1bn, and the Earnings-per-Share (EPS) figures will have added some shine – up 47% year-on-year. Net income was $6.4bn, a 42% increase, with gross margin at 64.5%, up by around 2.2%.

So while this is good for the share price, it’s disappointing to see that this titan still hasn’t managed to break the $1bn per quarter threshold. The Client Computing Group grew 16%, hitting $10.2bn in the quarter, and the Data Center Group grew 26% in a year to hit $6.1bn in the quarter. The Non-Volatile Memory Solutions group was up 21% year-on-year, to $1.1bn, and the Programmable Solutions Group hit $496mn, up 6% in a year.

Which brings us to the 8% year-on-year growth that Intel has managed for the IoT Group, which clocked in at $919mn in the quarter – up from $840mn in Q1, and $880mn in Q2. Notably, Q4 2017 listed IoT Group revenue at $879mn, and if the $919mn was an 8% growth year on year, then Q3 2017 clocked in at $845mn.

To format those figures, Intel has been up and down in the five quarters – $845mn (Q3), $879mn (Q4), $840mn (Q1), $880mn (Q2), and now $919mn (Q1). Those are sequential quarterly growths of: 4.2%, -4.4%, 4.7%, and then 4.4%.

The step backwards would have occurred when Intel scrapped its Galileo developer board, and the Joule and Edison modules – giving up entirely on anything smaller than an Atom CPU for its IoT processing requirements. In terms of strategy, Intel’s IoT play is in the data center and on the network-edge nodes, such as gateways and sensor hubs. It has given up on the low-power processors.

Returning to the results, steady 4% growth would be acceptable in a saturated market, one full of rivals that are all trying to prize deals away from each other. But this IoT market is still emerging, it’s nascent and not fully formed. This 4% growth is, in that context, almost shocking. One of the best performing semiconductor firms in history is only managing 4% growth in these revenues.

Of course, Intel’s data center wing is heavily involved in IoT workloads, and so it’s not fair to judge total IoT performance solely on the IoT Group. In terms of Riot’s coverage, the automotive strategy and the AI-based processors are of great interest too, and certainly fall under the IoT remit.

But in terms of pure-play IoT assets, this is still very slow going. At that ~4% level, two more quarters will see Intel on the cusp of $1bn, and a third quarter would push it over that magical threshold. The question remains whether Intel is going to get bored of this project, potentially scrapping or offloading it as it did with Edison and Joule.

Politically, Intel is under the stewardship of interim CEO Bob Swan, who took over after CEO Brian Krzanich was booted out after a “consensual” relationship with a subordinate came to light. That firing seemed weird, but Swan is now at the helm while the search continues.

Whether Swan has simply inherited this record quarter or has been actively responsible for some of this success behind the scenes is unknown, but it is certainly possible that Swan is appointed to the CEO role proper. Intel’s biggest hurdle is its ongoing delays and problems with its 10nm manufacturing process, which has recently prompted memos that it is firing up old manufacturing processes to meet ‘unexpected’ demand from the PC sector. That’s a worrying sign, but given the lack of competition in the market, any sale is a good sale for Intel.

For the Riot 50 stock tracker, Intel is a standout performer. The global stock markets have taken a battering in the past two weeks, and after five consecutive weeks of decline, most of the year’s gains have been eroded. If you look at the MSCI index, you’ll note a 9.5% drop since the beginning of October. The four trackers in the Riot 50 are collectively down 4.1% since we began the project in May. Most of their weekly postings in the past month have been negative.

Amazon and Alphabet disappointed the financial community, and a spate of Q3 technology results filings have also seen some big names battered in the markets. Globally, concerns about lower than expected growth, higher interest rates, and the rumbling trade war between the US and China, are the main causes. This seems to have led to the markets moving away from the technology firms, and both Amazon and Netflix lost about 20% of their value. CNN has a good overview of contributing factors here.