Slower Decline In PC Shipments Boost Intel’s Top-Line In Q3’16
Q3’16 has been a decent quarter for Intel (NYSE:INTC), as PC shipments declined at a rate slower than what the company previously anticipated. The replenishment of PC supply chain inventory helped the company increase its client computing group revenues by approximately 5% on a year-over-year basis. According to IDC, PC shipments declined by only 3.9% in Q3, as compared to its previous forecast of 7.1% for the quarter.
Further, some growth for Intel’s client computing group could also be credited to the launch of iPhone 7 by Apple, certain versions of which feature an Intel chip instead of Qualcomm’s processor. It should also be noted that Intel observed an exceptionally strong year-to-year growth of 10% and 19%, respectively, in its Data-Center and Internet of Things (IoT) segments.
In the table below we note the key metrics as reported for the company in Q3’16:
Declining PC Sales Remain A Drag On Intel’s Growth
Though PC sales decline in Q3 was slower than previously anticipated by Intel, the global PC shipment continued to decline for the eighth consecutive quarter in Q3’16, weighing heavy on the company’s overall growth. According to research firm Gartner, one primary reason for the decline in the PC shipments is the fact that the adoption of PCs in new households is declining, especially in the emerging markets, where smartphones are a bigger priority. In the chart below, we can note how tablet shipments have increased in comparison to PCs and laptops in recent years:
IoT and Data-Center Group Continue to Outperform
To offset the decline from PC sales, Intel has been quickly diversifying its portfolio by focusing on other potentially high growth areas, such as IoT and cloud computing. While the company’s revenue from PC processor sales has declined by 7% in the last two years, its revenues from the server platform and Internet of Things group has increased by 31% and 28%, respectively, during the same period.
Additionally, Intel has recently formed a new segment called as New Technology Group (NTG), which includes products designed for wearables, cameras, and other market segments (including drones). The company is likely to start reporting revenues for the newly formed group going forward, clearly reflecting that the company is foreseeing higher revenue contribution from this segment in future. Intel was a late entrant in the mobile computing space and for this reason does not (yet) have a very large presence in the market. However, the computing giant is keen not to miss the next big wave in computing – the Internet-of-Things. The company intends to build upon its core expertise of building microprocessors to deliver new products that offer greater utility and value to its customers in the IoT space.
However, what concerns investors is the fact that PC processors still contribute to more than 50% of the sales for Intel and that PC sales have decreased for more than a year now. It should be noted that while Sox (PHLX) index is up by around 22% this year, Intel’s stock price is up by only 9%. Nevertheless, it should also be noted that until a few years ago, Intel’s revenues were almost completely tied to PC sales. However, the company now derives its revenues from a much diversified portfolio.
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