During the call regarding Intel?s solid Q3 earnings, CEO Brian Krzanich delivered some bad news about the upcoming Broadwell chip. The 14nm unit that was first demoed in September was touted to be shipping to manufacturers by the end of this year. However, a ?defect density issue? impacted the yield, causing a delay.

Intel tried to fix the issue, Krzanich said, but the delivered improvements were not up to what company had anticipated. While the problem is fixed, according to the CEO, the shipping date had to be moved. "We have confidence the problem is fixed because we have data it is fixed (?)This happens sometimes in development phases like this. That’s why we moved it a quarter," he said.

Krzanich also said that the planned Skylake chip (Haswell successor) won?t have any delays due to this minor tie-up. The company posted their 3Q 2013 earnings that beat the analyst expectations, with $3.0 billion in earnings on $13.5 billion in revenue. Intel?s CEO confirmed that while it was an expected result, environment remains tough, and remains cautious about the 4Q. Still, revenue is expected to go up to $13.7 billion (plus or minus $500 million) with a gross margin percentage of 61 percent. 

Q3 Key Financial Information and Business Unit Trends

  • PC Client Group revenue of $8.4 billion, up 3.5 percent sequentially and down 3.5 percent year-over-year.
  • Data Center Group revenue of $2.9 billion, up 6.2 percent sequentially and up 12.2 percent year-over-year.
  • Other Intel® architecture operating segments revenue of $1.1 billion, up 13.3 percent sequentially and down 9.3 percent year-over-year.
  • Gross margin of 62.4 percent, 1.4 percentage points above the midpoint of the company’s prior expectation of 61 percent.
  • R&D plus MG&A spending of $4.7 billion, slightly below the company’s prior expectation of approximately $4.8 billion.
  • Tax rate of 25 percent versus the company’s prior expectation of 26 percent.

Editor’s Take: Anshel

Looking at Intel’s financial results for the fourth quarter, you can see that Intel’s consumer division continued to have issues as they struggle with the shrinkage of the traditional PC industry. As Intel continues to expand their Atom offerings and create new form factors for traditional laptop and desktop CPUs, the company will likely see more growth in their consumer businesses. It is clear that Intel is seeing significant growth in their ‘other’ Intel Architecture group since it saw an increase of 13%. However, their PC client group makes up the majority of the company’s revenue, while the majority of the company’s gross margin and profit is generated within their Data Center Group. The growth of 12% year over year and 6% quarter over quarter is what allowed Intel to post a $3 billion profit even with shrinkage in their largest revenue business.

Overall, the Intel financial story continues to be the same, however, we are clearly seeing a shift in the company’s revenue mix with more and more growth coming from their Atom business. It remains to be seen if the company can generate enough growth in this business to offset the shrinkage of their biggest and most notable business segment.

We are still waiting for Intel to clarify how they count their new Atom products into their quarterly earnings, so it may be possible that some of the PCG shrinkage is actually being stemmed by sales of Atom chips. However, I do not believe that Intel’s Atom business is significant enough to actually affect PCG more than a fraction of a percentage point.

Also, on the topic of Intel’s Broadwell delay, it is clear that Intel is getting their manufacturing process delayed by 1Q which means that they will ship to OEMs later. However, Intel claims that this will not affect the product launch timing that had originally been discussed in 2H of 2014. However, I am not convinced that an entire quarter delay will not affect the OEMs’ ability to deliver their products on time. I do believe that many will still deliver on time, but with less time for development and we’ll likely see lots of products launching much closer to the holiday season than anyone would have liked.