Comments on Intel Q4 2013 Conference Call
Intel’s Q4 2013 Earning Report triggered a now familiar pattern of analyst commentary. Pundits focused more on management’s very conservative forward guidance — flat year over year earnings for 2014, continued shrinkage in legacy PC markets, modest gains in enterprise markets, and comparatively larger gains in tablets, and other smaller form factor computing devices — than they did on the reported resilience of this business, which made it through fiscal 2013 with only minor bruises (gross revenues down 1% year over year). Even better, management reported on a greater market appetite for PC computing devices (Q4 2013 actually delivered 2% year over year growth) than I would have expected.
I’m confident Intel will eventually establish itself as one of the most important producers of chips for new mobile devices — tablets and smart phones. In an article titled Intel Inside Your Portfolio? It Should Be, Dimitra Defotis wrote in Barron’s “Intel has invested a cool $60 billion on manufacturing in recent years, and says it will give the company a leg up as chips advance from the current standard of 22-nanometer circuit dimensions to 14 and even 10 nanometers” (quoted from Ms. Defotis’ article, a link to which has been provided in this paragraph). Smaller mobile devices, like the “wearable” concepts attracting a lot of commentator interest, will benefit from these smaller circuits. Consumers will also benefit: Smaller circuits are less costly to build than are their larger siblings. Bottom line: I’ve invested in Intel in the past and am bullish on their near term future.
I would point to one other set of data included in the presentation, which I think anyone appraising Intel’s near term future fortunes should consider: Intel ” . . . saw strong tablet growth in the back half of the year, and inclusive of PC and tablets, [Intel’s Tablet] unit growth in the fourth quarter was up almost 10% from a year ago.” (this quote is excerpted from Intel’s CFO Commentary on Fourth-Quarter and Full Year 2013 Results). The Atom processor is doing much better than almost anyone would have expected. Dell’s Vue 8 tablet appears to have done well during the 2013 holiday shopping season. HP, Lenovo, and Asus each have their own entries in the same tablet device category. So I wouldn’t be surprised to see some positive upside in this segment when Intel reports for Q1 2014.
However, as Tiernan Ray noted on Saturday, January 18, 2014 in his Technology Trader weekly article for Barron’s, A More Mobile Intel Still Must Fix Its Financial Reporting, ” . . . Other IA is where the company records sales of smartphone and tablet chips.” (quoted from Mr. Ray’s article) Investors must take the following point, made by Mr. Ray (and substantiated by the CFO Commentary materials for this quarter) into account, in order to put together the whole story of Intel’s foray into improving its performance in the tablets and smart phone chip markets: “Other IA ran an operating loss of $620 million in the latest quarter, quite a contrast to the 40% operating profit of the PC division and the 49% of the server business. And that’s before Intel even reached its goal of taking market share in mobile—that is, before the rebates kick in. (Intel plans to cut some 5% of its workforce to reduce its costs.)” (ibid).
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