Intel racks up $4.2B in mobile losses in 2014, but promises to cut costs with cheaper chips

Intel ended 2014 how it started it when it comes to mobile: by losing around $1 billion. The silicon giant reported a $1.11 billion loss in its mobile communications group in the fourth quarter, bringing total 2014 losses in the mobile unit to $4.2 billion.

Revenue in Intel's mobile and communications group came in at negative $6 million for the fourth quarter, weakened by subsidies Intel has been paying to device makers to use its older and more expensive chipsets, especially for tablets.

Still, Intel executives pointed to brighter prospects in 2015. On the company's earnings conference call, Intel CEO Brian Krzanich said Intel shipped its chips inside 46 million tablets in 2014, beating the company's goal of 40 million and "becoming one of the industry's largest merchant silicon providers in tablets."

Intel CFO Stacy Smith put a positive spin on the loss in mobile and said in an interview with the New York Times that the company's success with tablets had "eliminated all doubt that it's a great product line."

Yet Intel still faces hurdles in mobile. "We have more work ahead of us. Our key goal for mobility is to improve profitability," Krzanich said. Intel is looking to ship a new mobile chip based on an architecture called SoFIA--and as that happens executives have said Intel's subsidy cost per unit will come down, which should improve Intel's mobile financials. SoFIA is a low-cost integrated application processor and baseband chip.

"As it ramps, it will progressively reduce the building material cost that have adversely affected our gross margins in the mobile business," Krzanich noted, adding the company recently inked agreements with Rockchip and Spreadtrum that he said will improve the company's position.

Krzanich said that in 2015 Intel can grow its mobile business "roughly at what the market will grow for tablets."

Importantly, Krzanich also said that in 2015 Intel is committed to cutting $800 million in costs from the mobile business. In November Intel disclosed it will merge its chipset unit targeting smartphones and tablets with its PC chip unit in early 2015.

Intel has already internally certified and tested the 3G version of SoFIA and Krzanich said Intel is in the process of getting carrier certifications. The LTE version of the SoFIA chipset will be available in the first half of the year and production will ramp up in the second part of the year.

Only Qualcomm (NASDAQ:QCOM) and Taiwan Semiconductor Manufacturing Co. had net incomes over the past 12 months that were larger than Intel's mobile loss, according to data compiled by Bloomberg. Still, investors haven't soured on Intel because of its strength in PCs, data centers, servers and the Internet of Things.

"Most investors are sticking with Intel because they see the growth potential of the data center group," Mark D'Cruz, an analyst at Key Private Bank, told Bloomberg. "The company has shown that it's pretty committed to entering into the mobile market, whatever the cost."

For more:
- see this release
- see this Seeking Alpha transcript
- see this Re/code article
- see these two separate Bloomberg articles
- see this NYT article

Special Report: Wireless in the fourth quarter of 2014

Related Articles:
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Intel vows to slash losses in mobile biz next year, but says they have been necessary
Intel to merge mobile chip unit into PC group
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