Subject: Editorial | July 17, 2013 - 09:34 PM | Josh Walrath
Tagged: silvermont, quarterly results, money, Lenovo, k900, Intel, atom, 22 nm tri-gate, 14 nm
Intel announced their Q2 results for this year, and it did not quite meet expectations. When I say expectations, I usually mean “make absolutely obscene amounts of money”. It seems that Intel was just shy of estimates and margins were only slightly lower than expected. That being said, Intel reported revenue of $12.8 billion US and a net income of $2 billion US. Not… too… shabby.
Analysts were of course expecting higher, but it seems as though the PC slowdown is in fact having a material effect on the market. Intel earlier this quarter cut estimates, so this was not exactly a surprise. Margins came in around 58.3%, but these are expected to recover going into Q3. Intel is certainly still in a strong position as millions of PCs are being shipped every quarter and they are the dominant CPU maker in its market.
Intel has been trying to get into the mobile market as it still exhibits strong growth not only now, but over the next several years as things become more and more connected. Intel had ignored this market for some time, much to their dismay. Their Atom based chips were slow to improve and typically used a last generation process node for cost savings. In the face of a strong ARM based portfolio of products from companies like Qualcomm, Samsung, and Rockchip, the Intel Atom was simply not an effective solution until the latest batch of chips were available from Intel. Products like the Atom Z2580, which powers the Lenovo K900 phone, were late to market as compared to other 28 nm products such as the Snapdragon series from Qualcomm.
Intel expects the next generation of Atom being built on its 22 nm Tri-Gate process, Silvermont, to be much more competitive with the latest generation offerings from its ARM based competitors. Unfortunately for Intel, we do not expect to see Silvermont based products until later in Q3 with availability in late Q4 or Q1 2014. Intel needs to move chips, but this will be a very different market than what they are used to. These SOCs have decent margins, but they are nowhere near what Intel can do with their traditional notebook, desktop, and server CPUs.
To help cut costs going forward, it seems as though Intel will be pulling back on its plans for 14 nm production. Expenditures and floor space/equipment for 14 nm will be cut back as compared to what previous plans had held. Intel still is hoping to start 14 nm production at the end of this year with the first commercial products to hit at the end of 2014. There are questions as to how viable 14 nm is as a fully ramped process in 2014. Eventually 14 nm will work as advertised, but it appears as though the kinks were much more complex than anticipated given how quickly Intel ramped 22 nm.
Intel has plenty of money, a dominant position in the x86 world, and a world class process technology on which to base future products on. I would say that they are still in very, very good shape. The market is ever changing and Intel is still fairly nimble given their size. They also recognize (albeit sometimes a bit later than expected) shifts in the marketplace and they invariably craft a plan of attack which addresses their shortcomings. While Intel revenue seems to have peaked last year, they are addressing new markets aggressively as well as holding onto their dominant position in notebooks, desktops, and server markets. Intel is expecting Q3 to be up, but overall sales throughout 2013 to be flat as compared to 2012. Have I mentioned they still cleared $2 billion in a down quarter?