Intel Announces Q4 2017 Results: Calm Before the Storm?

Subject: Editorial
Manufacturer: Intel

Another Strong Quarter for the Giant

This afternoon Intel released their Q4 2017 financial results. The quarter was higher in revenue than was expected by analysts. The company made $17.1B US in revenue and recorded a non-GAAP net of $1.08 a share.  On the surface it looks like Intel had another good quarter that was expected by the company and others alike. Underneath the surface these results have shown a few more interesting things about the company as well as the industry it exists in.

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We have been constantly hearing about how the PC market is weak and it will start to negatively affect those companies who's primary products go into these machines. Intel did see a 2% drop in revenue year on year from their Client Computing Group, but it certainly did not look to be a collapse. We can also speculate that part of the drop is from a much more competitive AMD and their strong performing Ryzen processors. These indications point to the PC market still being pretty stable and robust, even though it isn't growing at the rate it once had.

The Data Center Group was quite the opposite. It grew around 20% over the same timespan. Intel did not provide more detail but it seems that datacenters and cloud computing are still growing at a tremendous rate. With the proliferation of low power devices yet increased computing needs, data centers are continuing to expand and purchase the latest and greatest CPUs from Intel. So far AMD's EPYC has not been rolled out aggressively so far, but 2H 2018 should shed a lot more light on where this part of the market is going.

Click to continue reading about Intel's Q4 2017 earnings!

The changes in tax law did have a negative effect on Intel initially as they paid a one time charge of $5.4B US which lead them to have a GAAP net loss of $687 million. Intel did state that the changes in the tax laws will allow them to increase quarterly dividends by 10%. So while Intel took an initial hit, it will be sending less money to taxes with more going towards shareholders.

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The quarter did not feel the potential impact of the Spectre/Meltdown security issue that Intel is dealing with right now. The CFO was quoted as saying that the company sees no meaningful impact on corporate earnings.  However, the company then came out with the following statement:

"We have and may continue to face product claims, litigation, and adverse publicity and customer relations from security vulnerabilities and/or mitigation techniques, including as a result of side-channel exploits such as "Spectre" and "Meltdown," which could adversely impact our results of operations, customer relationships, and reputation. Separately, the publicity around recently disclosed security vulnerabilities may result in increased attempts by third parties to identify additional vulnerabilities, and future vulnerabilities and mitigation of those vulnerabilities may also adversely impact our results of operations, customer relationships, and reputation."

This is not exactly reassuring to shareholders and seems to directly contradict the CFO's "no meaningful impact" quote. AMD is susceptible to a variant of Spectre, but it does not show the same level of vulnerability that Intel's products do. We also are seeing 3rd party confirmation of performance hits anywhere from 5% to 30% depending on the application.

Hardest hit are datacenter type applications which can be highly I/O bound. Back end applications such as those powering multiplayer games and complex, interactive websites seem to have the biggest hit to them. Intel has also recommended that users and companies stop applying the latest firmware fixes until a few more things are settled. This could potentially impact Intel in a very negative way when Q1 2018 earnings come out. News of the exploit was released at the very beginning of the new quarter. This may not have a large effect on consumer units, but it could cause enterprise clients to place orders on hold or migrate their roadmap to using EPYC based systems.

Intel claims that they will have a hardware fix for their upcoming chips later this year, but silicon level fixes obviously cannot be applied to current CPUs. Users will have to rely on firmware and OS fixes to close these vulnerabilities.

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Intel also spoke very little about 10nm progress. They are aiming for a 2H 2018 ramp, but for now they are relying on their 14nm products. This is probably the longest that Intel has had to compete with AMD on what is essentially very similar processes. Yields for 10nm have apparently been poor and it will be some time before we see the mass introduction of parts based on that node.

AMD is set to announce their Q4 results in 5 days. At that time we will get a better view of the market. I would expect AMD to provide a little bit more guidance on what Q1 will look like for them, and hopefully shed some light on what to expect from Intel. Intel certainly has some serious hurdles in front of them in terms of this vulnerability, their process troubles, and the greatly increased competition from AMD in mobile, consumer, and enterprise markets.

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January 26, 2018 | 08:52 AM - Posted by asH95 (not verified)

On the Earnings call analysts didn't seem to concerned about exploit fallout, strange when the exploit fix CPU's come out there will be questions over their speed/productivity vs prior, over free replacements, over current inventory, all affecting bottom line.

January 26, 2018 | 09:52 AM - Posted by Josh Walrath

I found that attitude concerning. This is not a simple fix and it will have an effect on the bottom line. We just don't know how much yet.

January 26, 2018 | 11:47 AM - Posted by asH95 (not verified)

Am I the only one to ask-how do you fix Speculative Branch prediction without breaking it?

January 26, 2018 | 12:19 PM - Posted by msroadkill612

Or process prefetches so much, they are not worth the bother?

Intel is more vulnerable because they have pursued them more aggressively, to achieve their much touted IPC edge over AMD.

January 26, 2018 | 12:23 PM - Posted by Josh Walrath

I believe that it will have to do with what level of rights are given to any one process. So speculative execution will have the lowest level, so in theory it can't "read" what should be protected memory.  I am likely simplifying this way too much.  But indications are that there probably will be a performance hit, but not nearly what would is caused by shutting SE down entirely.

January 26, 2018 | 12:13 PM - Posted by msroadkill612

"Intel claims that they will have a hardware fix for their upcoming chips later this year (IE. WITHIN 12 MONTHS), but silicon level fixes obviously cannot be applied to current CPUs."

When that happens, it may improve on the software work around, but they will still take a big performance hit over the formerly less restricted prefetching.

They must now deal with clients who only got as little as 70% of what they paid for, and sell products with very diminished ability for up to a year.

Perhaps most seriously, their entire product roadmap must stand still until the fix design is settled on. ~no product development can proceed until then.

Its a nightmare, and not the only one facing intel.

January 26, 2018 | 12:28 PM - Posted by Josh Walrath

This is a very serious situation, you are correct. Where it could be crippling to Intel is in the enterprise level. They have worked hard over the years to displace the old SPARK/DEC architectures and move everything to x86. They were the gold standard, but the amount of installed hardware that is going to be negatively affected by the "fix" is mind boggling. It will be a while before AMD can capitalize on this situation by showing if their product is superior here in terms of limited impact and partial immunity from Spectre. But it takes quarters for these sea changes to occur... but don't think that CTOs have not been paying attention. They are likely seeing the increases in the power bill on products that have been patched to minimize the risk.

January 26, 2018 | 12:16 PM - Posted by frack (not verified)

It's going to take a few business quarters for any affects of Meltdown and Spectre to show up on Intel's books. And the PC market on the consumer side is very cost sensitive so AMD is sure to make gains there. AMD's Raven Ridge APUs are more of a threat to Intel in the laptop market with AMD's Desktop APUs expected to arrive shortly. Those cTDP 45-65 watt Raven Ridge desktop APUs may become popular inside the laptop form factor for gaming laptops/workhorse laptops as at that wattage laptops can easily be made with that 45-65 watt TDP.

The Mini/Micro desktop market will love AMDs Raven Ridge desktop APU options with Vega 11(11 nCUs) graphics so there is going to be competition against Intel's standard NUC based offerings and not necessarily the Intel/Discrete Vega semi-custom die EMIB SKUs where AMD will earn revenues anyways for the Vega semi-custom die sales directly to Intel.

Intel's Server Room sales wll most definitely see competition form AMDs Epyc based offerings but the server market takes its time testing and vetting any new CPU products so more business quarters of revenue figures are needed to judge any server market changes.

January 26, 2018 | 01:08 PM - Posted by wownwow (not verified)

Intel is such an amazing, powerful company that deserves three Guinness World Records for being able to:

1) Have the Meltdown patch/workaround (not a fix) of having OS relocate the kernel, the first and only in the CPU design history!
2) Turn a BUG (in specification or implementation) of mishandling (or not handling) the processing privilege levels into a FEATURE!
3) Not recall the faulty products but instead keep selling them and even launch more new faulty products! :-D

What an amazing world that people pay for the FEATURE of the kernel relocation and are happily managed by Intel, the most powerful company!

January 26, 2018 | 01:39 PM - Posted by Josh Walrath

Between this and GPU prices, it is a bad time to be building a computer on your own.

January 26, 2018 | 01:43 PM - Posted by ItWillTakeLonger (not verified)

Hopefully AMD will get more server room market share and AMD's Epyc CPUs not having any issues with Meltdown currently should help get AMD a larger server/workstation market share in the future.

That little slap on the Hand that Intel got in the past should have resulted in damages that where at least 5 times larger being awarded to AMD, but that past and what's done is done. AMD hopefully will get back to that 23+ percent server market share and continue to compete with Intel but we are all paying the security cost of Intel's deeds to maintain its monopoly over the CPU market for PC/laptops and servers CPUs/SOC so that's a matter for the courts to decide. I personally have 4 laptops with the newest generation laptop only up to the Ivy Bridge level. So that 4 Intel SOC based laptops that may never be totally safe if the laptops OEMs do not push out any firmware/microcode updates to cover any Meltdown/Spectre issues that can not be fixed with OS/software updates.

January 30, 2018 | 08:18 AM - Posted by Alb (not verified)

What storm? AMD has not even a beta patch for Spectre variant 2 and Intel has to worry?? Come on!
No storm around, but very good money as usual.

All actual cpus are unsecure in server space so nothing will change.

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