Intel Corporation announced their 4Q results on Thursday with earnings jumping a surprising 48%. Revenue jumped 8.4% to $11.46 billion. Analysts are picking up pieces of their shattered forecasts wondering what happened to their decidedly downcast "view" for the company.
Tablet Expectations & Reality
The market, mesmerized with the mobile computing phenomenon, has caused the analyst community to lose their bearings when it comes to what constitutes margin and how it?s accumulated on the bottom line. The ramp-up in sales of tablet computers has caused concern about the company?s prospects as it has been slow in reacting to it were put to rest with Intel?s profit margin coming in at a hefty 67.5% up from 64.7% year-on-year.
PC sales have been weakening throughout 2010 with 4Q sales only 3% above forecast. Markets occasionally behave strangely and occasionally reflect the folly of expectations. While tablet computing has a high growth expectation it will nevertheless experience the usual "reality check" over the next several quarters before finally settling into a valid "margin generator". Only Apple has an ongoing business in this segment while the newer introductions have yet to establish a standard measure of return.
What cannot be ignored is the recent exponential expansion of digital traffic on 4G networks. Service providers have simply failed to adequately invest in the equipment base necessary to support the needs of their subscriber base. Rumors are rife that they?ve just begun a mad scramble to meet these needs.
The trend toward virtualization has also combined to slow server sales a condition now reversed with Intel experiencing a tremendous demand for server processors garnering better than expected margins for the company.
A persistent "buzz" is that a PC market stall exists in anticipation of Intel?s Sandy Bridge processor availability. That release is just now entering the market and is fueling Intel?s future forecast – the fact that they have more than 500 design wins for it is in itself impressive and surprising. It?s expected that both notebook and desktop sales will be revived by the processor?s availability.
On the Mobile Front
Intel, accused of missing the onset of mobile computing, has now decided to boost investments on new plants and equipment by 73% to keep pace with chip demand and product capabilities. This is good news for the overall semiconductor segment and especially for equipment manufacturers. What is left unsaid is their plan of attack for the mobile space beyond the power hungry Sandy Bridge line.
Intel has yet to show their hand regarding next generation product for the mobile computing. There is some signs that the rollout of their mobile space processor series will be generically similar to the Sandy Bridge processor but with a change in the basic transistor type accompanied by additional power saving functionality. Expect these to roll out at or before the next Intel Developer Forum in September.
Intel is seen as a bellwether for the entire world semiconductor business. Remember that no matter how you feel about the company if they do badly, the entire industry will also do badly. It?s reassuring to see Intel so bullish on 2011?