Intel still on track to cutting mobile losses, plans LTE chip for entry-level phones in early 2016

Intel is still on track to cut around $800 million from losses in its mobile operations this year but is delaying slightly the introduction of its newest mobile chips designed for entry-level devices.

Overall, the chipset giant posted lower year-over-year profit and revenue for the second quarter, though its results still beat analysts' expectations. The company reported a net profit of $2.71 billion for the period, down from $2.8 billion in the year-ago quarter, while earnings per-share were flat at 55 cents. The company said total revenue declined in the second quarter to $13.2 billion from $13.83 billion.

Still, analyst had been expecting weaker results; analysts polled by Thomson Reuters had expected Intel to post per-share earnings of 50 cents on revenue of $13.04 billion.

Since Intel combined its mobile and PC chipsets into one unit starting in the first quarter, it's difficult to tease out how much revenue it had in mobile. Intel said that its chips shipped in 9.9 million tablets during the second quarter, up 11 percent year-over-year. Intel CFO Stacy Smith said during Intel's earnings conference call with analysts that the company remains "on track to our annual goal of improving mobile profitability by $800 million, with about a third of the improvement realized to date."

At Mobile World Congress in March, Intel unveiled three new Atom-based mobile processors called the x3, x5 and x7, in addition to a new 7360 LTE modem. The x3, which had been named "SoFIA" for 3G devices, is designed for low-cost smartphones, phablets and tablets. Intel has said it has 20 customers committed to deliver designs based on the x3, and that chip is expected to boost Intel's market share in the entry-level smartphone market this year.

Intel CEO Brian Krzanich said during the call that its OEMs' first Atom x3, x5 and x7 products were announced during the quarter "and are ramping using our previously code named Cherry Trail SoFIA 3G and SoFIA 3G-R products." He said the LTE version of the x3 platform, SoFIA LTE, "is sampling now for network certification, and is expected to ship in volume in the first half of next year." Krzanich also said that Intel's latest LTE modem, the CAT-10 7360, is on track for shipments to customers this year.

In terms of the ramp up of SoFIA shipments, especially for LTE, Krzanich acknowledged "it's a little bit later than what we wanted." But he said on the LTE front, "the good news is it's out. It's yielding well. It's, as we said, in carrier validation. And it will ship in volume in the first half of next year."

Intel racked up losses in mobile last year by effectively subsidizing device makers that put its higher-powered chips into lower-end devices. Now that it has a chip designed for that segment, SoFIA, Intel will be spending less money on engaging in that practice, known as "contra revenue."

Krzanich said that cutting losses in the mobile business will happen more in the second half of the year as the SoFIA 3G chipsets start shipping. "So we feel like we have a very good detailed plan to go and continue," he said. "And we'll at the investor meeting update you on how we'll continue that program to reduce the costs and the losses again next year as well."

In early June Intel agreed to buy rival chipset maker Altera for $16.7 billion in a deal that will get Intel further involved in the market of silicon for network gear and data centers. Altera, along with rival Xilinx, is one of the two biggest suppliers of so-called field-programmable gate arrays, or FPGAs, which can be used in a wide variety of devices and applications. FPGAs are widely used in base stations, computer networking gear equipment, cars and other products. After they are manufactured, the FPGA chips can be programmed to carry out specialized tasks like data encryption and work much faster than traditional microprocessors.

Krzanich said Intel thinks it "can enhance Altera's base FPGA ARM-based business substantially" and plans to do this through its "leadership in Moore's Law and our ability to execute designs using our tools and silicon more quickly, allowing us to continue to support and develop their ARM-based products." He also said Intel wanted to do the deal because "history tells us that the FPGA vendor who is first to a manufacturing process node enjoys a market segment share advantage over the life of that node."

The Intel chief also said that "integrating Altera's world-class technology with Intel architecture in the high-growth data center and Internet of Things market segments will create new product categories and capabilities. "We expect this strategy to produce significant shareholder value, and we're looking forward to implementing our plans. We plan to have a deeper discussion on the value drivers underlying this strategy at our investor meeting this fall." 

For more:
- see this release
- see this Seeking Alpha transcript
- see this Re/code article
- see this Bloomberg article
- see this WSJ article (sub. req.)

Special Report:  Wireless in the second quarter of 2015

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