Intel’s third quarter results indicated a company which is weathering the storm of PC decline better than naysayers had expected, but still faces major challenges in replacing that key market with mobile chip sales. As if to underline the trend, the company admitted that there are delays to its cutting edge, 14nm Broadwell processor, which will be its flagship for next generation, battery-friendly ‘post-PC’ products such as tablets and ultrabooks.
Broadwell has fallen behind by about three months due to technical setbacks, said CEO Brian Krzanich on the earnings call, and production will not now start until the first quarter of next year. Broadwell is important to help Intel put clear water between its own silicon and that based on ARM ‘ with its superior track record in efficient power consumption ‘ in its core PC space, or at least in the gadgets that succeed the traditional PC.
Krzanich insisted the delay was just a ‘small blip’ in the plan and CFO Stacy Smith added that this would not affect fourth quarter margins. ‘We are not happy with the one-quarter push but it does point to how difficult these problems are to solve,’ he told Reuters.
Chris Rolland, an analyst at FBR, told the news agency that the setback was more serious for market perception than actual impact on sales, saying that investors were sensitive to any weakness in Intel’s most important source of competitive edge, its manufacturing processes. For these guys, their competitive advantage is based on manufacturing. It’s certainly a small setback. You don’t want to screw with timetables, and you don’t want to screw with Moore’s law,’ he added.
Sources indicate there will not be a desktop version of Broadwell, just a refresh of the current Haswell PC processor, as with slowing sales and upgrade patterns, Intel moves to a two-year cycle in this segment.
The current version of Haswell remains the most important driver of device chip sales while Intel fights to push its mobile processors into smartphones and low power tablets, progress which is steady but still too slow to compensate for PC decline. The new Bay Trail Atom-based chip is the workhorse for this effort but there are few indications of its early progress as yet.
Intel turned in third quarter results that narrowly beat Wall Street expectations, but disappointed analysts with its revenue outlook for the current fourth quarter. Net earnings were $2.95bn or 58 cents per share, down slightly on last year’s $2.97bn or 58 cents, and ahead of forecasts of 53 cents per share. Revenue was static at $13.48bn (compared to $13.46bn a year earlier), and gross margin was 62.4%, both figures ahead of Wall Street forecasts. For the current quarter, Intel predicted gross margin of 61% and revenue of $13.7bn, plus or minus $500m. The latter number is behind analyst hopes of
$14.004bn, driving shares down by about 2%.
Despite Intel’s challenges on the device chip front, the markets have been cheered by the appointment of a new CEO with a strong focus on mobile and embedded growth sectors, while many analysts believe the PC decline is already accounted for in Intel’s stock price. This has risen by about 14% so far this year, and although this is less than the average of 20% for the Standard & Poor’s 500 index, Intel shares trade at 12 times expected earnings, which is only slightly less than arch-rival Qualcomm’s 14 times.