Intel reported overall first-quarter results that slightly beat analysts' expectation, but the company also laid bare its current financial weakness in the mobile market. Intel CEO Brian Krzanich and other executives said the company has a solid roadmap and path to profitability, but that it will take time to make money from chips it puts into smartphones, tablets and other mobile devices.
Intel, the world's largest chip maker, reported net income of $1.947 billion, down slightly from $2.045 billion in the year-ago period, but just ahead of analysts' expectations, according to Reuters. The company said first-quarter revenue was $12.76 billion, compared with $12.58 billion in the year-ago quarter, slightly below analysts' expectations.
However, for the first time Intel also broke out the financial results of its Mobile and Communications Group, which houses its wireless chip business, and the numbers were not pretty. The unit had an operating loss of $1.78 billion in all of 2012 and $3.15 billion in all of 2013. In the first quarter of 2014 the mobile group had an operating loss of $929 million on revenue of just $156 million. That compares to revenue of $7.94 billion in the first quarter for Intel's PC business.
"The raw financial analysis would say: you've been trying for a long time, you've invested internally, you've done acquisitions and you still have not been able to make it work," Michael Shinnick, a fund manager at Wasatch Advisors, which owns Intel shares, told Bloomberg. "It just does appear to be a long-term capital drain. There have to be milestones towards profitability."
On an earnings conference call with analysts, Krzanich noted that the company is making progress in mobile. He pointed out that, at the Mobile World Congress trade show in February, Intel announced multi-year, multi-device agreements with Lenovo, Asus, Dell and Foxconn to expand its base of smartphone and tablet customers. He also said Intel chips will ship inside 40 million tablets this year, and that it "shipped 5 million units in the first quarter, placing us squarely on track to that goal."
Additionally, Krzanich noted that Intel's multimode XXM 7160 LTE chipset is now available in the Samsung Galaxy Note 3 Neo and the Asus Fonepad 7, in addition to the previously announced Samsung Galaxy Tab 3. The company's next-generation LTE chipset, the XMM 7260, supports Cat 6 300 Mbps speeds and carrier aggregation, and Krzanich said it is on track to ship this quarter. He also said Samsung, Asus, Lenovo, and Dell are all committed to the platform on a combination of phone and tablets, along with module vendors like Huawei and Sierra Wireless.
Intel is seeing a decline in its feature phone and 2G/3G business, amid the transition to integrated LTE solutions, Krzanich said. Yet he looked toward the future optimistically: "And don't forget we have a roadmap of LTE products beyond the 7260 that continue the level of carrier aggregation and product leadership," he said. "We're fairly confident that we can continue to grow this business and turn it profitable over that time."
"In terms of progress in the marketplace, you're seeing it now," Intel CFO Stacy Smith told Bloomberg in an interview following the call. "It'll take some while for that to translate into meaningful financials, but this is an important business and we're patient."
Patrick Moorhead, head of the boutique research firm Moor Insights and Strategy, told Re/code there is potential for improvement in Intel's mobile unit. "Intel's latest LTE modem looks solid and the next generation of its manufacturing technology on 14 nanometers plus a new mobile chip architecture could bring Intel its highest level of mobile competitiveness ever," he said.
In a bright spot, Intel's Internet of Things Group reported $482 million in revenue for the first quarter, up from $365 million in the year-ago quarter. The unit had an operating profit of $123 million, up from $67 million in the year-ago period.
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