There have been a lot of analysts and companies talking a lot about the Post-PC world that we are entering. Most of this has been primarily driven by those who are heavily invested in mobile markets and are heavily focused on mobile. There is without a doubt an insane amount of growth in the mobile sector and it shows no signs of stopping, but all of those out there speaking about a Post-PC Era in computing during 2011 couldn’t be any more wrong. Intel is the perfect example of why.
Intel [NASDAQ: INTC] has a lot of businesses that they are involved in and a huge part of their business is their PC Client Group. This business unit was responsible for $35.3 Billion of $54 Billion in revenue, up 17% from 2010. If 17% growth in their PC Client Group is a sign of a Post-PC era then I have no idea what that even means anymore. To be honest, PCs have and will continue to have a place in the consumer electronics market for years to come. Their importance to the driving forces of technology may not be as apparent as they are now, but they will continue to be a large segment of sales in the global technology market. Furthermore, the assertion that the global hard drive shortage as a result of the catastrophic floods in Thailand apparently did not affect Intel as much as had been anticipated. Frankly, the shortage of hard drives appears to have hurt OEMs and hard drive makers more than anyone else.
Some of Intel’s Ultrabooks shown at this year’s CES 2012
In terms of overall performance, in 4Q 2011 Intel reported $3.4 Billion of profits on $13.9 Billion in revenue while operating on a gross margin of 64.5%. The interesting part, though, is that overall this quarter was actually a little weaker than their 3Q 2011. In 3Q 2011 Intel reported $14.22 Billion in revenue and $3.5B in net income/profit. Admittedly, these figures aren’t that big of a difference, but when you considering how much growth most of their businesses are seeing you’ll notice that the only likely reason for the slight decline is the weakness in Intel’s Atom and Chipset division which reported annual revenue at $1.2B down 25%. A lot of this may have to do with two major factor that have hit this business unit of Intel’s.
The two major factors for this business unit’s decline have to do with their botched release of their Sandy Bridge architecture earlier this year as well as the cannibalization of Intel’s atom processors in the netbook and low-power space by AMD and others. When speaking about the botched Sandy Bridge release, we are of course referring to the issue which was discovered by multiple motherboard manufacturers as well as OEMs where SATA performance would quickly degrade until the chipset was no longer functional. This was a result of an improperly placed transistor inside of the Intel Cougar Point chipset which was designed to power Intel’s new line of Sandy Bridge processors. In 4Q 2011 alone, Intel saw Atom microprocessor and chipset revenue of $167 Million, down 57% year over year.
This cock-up essentially forced Intel to recall all motherboards that had been using Sandy Bridge processors and as a result caused huge delays within the industry and angered many motherboard and OEM partners. This recall resulted in Intel taking a ~$1 Billion charge to that division resulting in what many expect to be growing extremely heavily in 2012 with the introduction of Ivy Bridge and many Ultrabook designs based on Ivy Bridge.
While Intel does have a lot of promise in the smartphone and tablet space with Medfield, they still have yet to prove real market adoption beyond a few small announcements at CES. We shall see at MWC what they have to offer consumers and what kind of real design wins they will have (beyond the single Lenovo phone). Once Intel successfully productizes and launches one of their Atom processors in the mobile market, then we will begin to really analyze their position. At this moment, we believe it is too soon to make any real predictions of Intel’s success or failure in the smartphone and tablet arena considering past experiences. We remain cautiously optimistic and shall see what they do with their baseband acquisition from Infineon from back in 2010 in terms of integrating such technology into their SoCs. Our believe, though, that the real competition will come from Intel once they’ve shrunken their SoC manufacturing process down to 22nm with Silvermont from the current 32nm being used on Medfield.
Intel’s Medfield based smartphone reference design shown to us during CES
Intel’s Data Center Group also saw a 17% increase from 2010 raking in about $10.1 Billion in revenue out of the total $54 Billion. This represents the second largest chunk of Intel’s revenue stream as a company and is primarily driven by Intel’s promotion of cloud based initiatives. Intel’s promotion of cloud has driven many OEMs to drive their customers towards the cloud which in turn sells more servers and more server chips which in the end makes Intel more profitable. We expect this segment of Intel’s business to continue to grow as cloud computing only continues to pick up steam. 2012 should be a good year for Intel’s Data Center Group as they will try to continue to convert new customers from competitors’ systems to Romley and upgrade older customers to Romley as well. Since Romley had been delayed, the Data Center Group will see much more pick up in 2012 as a result of increased cloud initiatives and the eventual availability of Romley in 1Q 2012.
We are also interested to see that Intel’s McAfee Inc and Mobile Communications business contributed revenue of $1 Billion in 4Q 2011 while contributing a total of $3.6 Billion in 2011 as a whole. We are still waiting to see what Intel is really going to do with their McAfee acquisition as they haven’t really introduced anything in the consumer market since then. We are also interested to see where Intel’s Mobile Communications business goes with things like smart homes, smart grids, and other smart devices gaining broader adoption in the market. We are extremely interested, as we’ve said before, to see how Intel utilizes their Infineon acquisition in their mobile Atom processors.
Overall, 2011 was yet another great year for Intel and it actually saw their stock price rebound from 2008 lows and finally reach prices pre-financial crash. Currently, Intel’s stock is at $24.64 after closing up $0.24 or 0.95%. In after hours trading, Intel is up an additional $.018 or 0.70% at 25.81.