Intel Sees Huge Profit Fall As PC Hurt Continues

Intel’s latest financial results reflect the ongoing problems as the company seeks to reorient itself to new market realities.

As officials work to grow Intel’s tiny share of the market for chips in ultramobile devices, the company is still finding itself weighted down by a PC space it dominates but which continues to see sales fall.

Financial Hit

The second quarter illustrated this struggle. Intel executives promised to accelerate the innovation around its low-power Atom platform, and began to lay out the roadmap for its Core and Atom portfolios that they say will create even more inroads into the markets for devices like smartphones and tablets.

However, the company’s quarterly financial numbers took a hit, with the company seeing both income and revenue decline in comparison with the same period last in 2012. Net income fell 29 percent from last year to $2 billion (£1.3bn), while revenue hit $12.8 billion (£8.4bn), a 5 percent decline.

The PC Client Group revenues were $8.1 billion (£5.3bn), a 7.5 percent drop from the second quarter in 2012.

CEO Brian Krzanich, who took over the top job in May, replacing Paul Otellini, admitted that Intel was playing catch up in what is a fiercely competitive mobile chip space dominated by systems-on-a-chip (SoCs) designed by ARM and made by such partners as Samsung, Qualcomm and Texas Instruments.

“Intel was slow to respond to the ultramobile trend,” Krzanich said in a 17 July conference call with analysts and journalists to discuss the quarterly financial numbers. “We will move Atom even faster to our leading-edge silicon technology.”

What the company must do is get back to where it is ahead of the curve rather than reacting to trends that already are happening, he said. Just days after taking over the CEO job, Krzanich made a number of organisational moves aimed at streamlining the company, including having the Intel Architecture Group report directly to him and creating a unit within the company that will focus on new devices.

Intel Optimism

During the call, Krzanich and CFO Stacy Smith also pointed to what Intel has coming in the second half of the year that they said will make Intel more competitive with ARM and its partners. The executives said the new Core chips based on the lower power “Haswell” design – which have been launched and will be found not only in PCs but also tablets and new form factors, such as convertibles and hybrid systems – will begin seeing momentum in the marketplace.

At the same time, Intel is gearing up for the first of the Atom SoCs that will be based on the new “Silvermont” architecture, which promises significant gains in performance, energy efficiency and graphics capabilities. The upcoming “Bay Trail” SoCs will be for tablets and other mobile form factors, while “Merrifield” will be targeted at smartphones.

“Avoton,” another Silvermont-based Atom SoC, will be used in low-power, dense microservers.

“Both product lines will be driving Intel’s future,” the CEO said.

In response to a question about whether the Atom chips will take business away from the Core portfolio, Krzanich said that Intel executives “don’t think it will be cannibalisation. … What we think is that it will let us get into markets that we’re not in now in a big way.”

What is key for Intel is to ensure that the company has the best products to address whatever trends arise in the industry.

“At the end of the day, the market will go where it will go,” Krzanich said.

He noted that Intel already is seeing some gains, pointing to Samsung’s use of Intel SoCs in its new Galaxy Tab 3 10.1-inch tablet.

In addition, by the end of the year, Intel will begin production of its first 14-nanometer SoCs.

However, until then, the second half of the year could be tough on the company. Intel is forecasting revenues for the current quarter to come in at $13.5 billion (£8.9bn) – plus or minus $500 million (£329m) – below analyst estimates. For the year, revenues will be relatively flat, the executives said.

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Originally published on eWeek.