Comms chips

Q3 Shows Intel in Full Transition

Intel's third-quarter results indicate the electronics industry is nearing a milestone, as cloud computing spending overtakes spending on computing devices, including PCs, laptops and mobile.

Intel Corp. (Nasdaq: INTC)'s new chief financial officer, Stacy Smith, said revenue in Intel's Client Computing group (PCs, tablets, mobile devices, etc.) will soon fall below revenue in Intel's Data Center group. Intel won't be able to pinpoint when that occurs until February at the earliest, which implies it could happen as soon as sometime in the current, fourth quarter.

Though Intel is not organized with a defined group dedicated to selling to enterprise customers, the results in its operating groups are influenced heavily by trends in enterprise spending, and so the company and its investors continue to discuss the company's business in those terms.

Intel executives said there are still enough enterprise customers intending to build their own private cloud infrastructure to keep Intel's overall enterprise revenues (rolling together spending on devices and spending on private cloud infrastructure) steady for another few quarters. But spending on devices will continue to plunge, and even if there's growth in private cloud spending, it won't be significant.

CEO Brian Kzranich said: "The customer feedback we're getting that gives us some confidence that the enterprise side with their own private clouds will continue to see some improvement. It's not going to be a growth area though."

Smith modulated that statement. "I think you have a phenomenon that says the cloud portion of the enterprise becomes so big and continues to grow at a fast pace that we can certainly maintain a robust growth rate even if the enterprise segment is not growing to slightly weak."

Which invites the question of whether the public cloud business, contained in Intel's Data Center Group, can keep growing enough to lead to Intel's overall company growth, compensating for the shrinking enterprise business. Intel execs are confident that it will.

"When we go out and talk to our partners and customers about what's driving cloud growth, what's going to drive the networking and storage requirements out in time, we start to look at devices like autonomous cars and the IoT network in general," Kzranich said. "All of those things are driving large requirements into those data centers in those growth segments. And so that's what gives us the comfort that, yes, this will continue. And our forecasts are holding in those spaces."

Intel announced autonomous vehicle deals with Land Rover/Jaguar a year ago, and with BMW in the Spring. Smith said Intel is working with a variety of other OEMs "that are a mix of everything from autonomous driving programs to in-vehicle infotainment type systems. We're thinking of them more and more as servers on wheels," he said.

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Those types of applications pull in other Intel products as well. "They're needing connectivity, they're needing storage, they're needing silicon photonics for moving the infotainment -- basically the graphics video around the system. They use FPGAs for accelerators...," Smith added.

Separately, the company seems to be gaining traction in the mobile space, an area it has tried to target in the past and failed, remaining an also-ran behind companies like Qualcomm. Intel execs noted that Intel's latest LTE modem chip, the 7480, was recently qualified by AT&T, which should be a springboard for design wins that would hit the market in mid-2017.

"We typically go then out and around the world, so you'll see it many of the same places that the 7360 got qualified, in Europe, in China, other parts of Southeast Asia," Kzranich said.

The 7360 is the 7480's predecessor. Neither Apple nor Intel has ever confirmed it, but it is widely believed that some percentage of iPhone 7s incorporate the 7360.

As for the quarterly results, Intel reported third-quarter revenue of $15.8 billion, operating income of $4.5 billion, net income of $3.4 billion and EPS of 69 cents. Revenue was up in the Client Computing Group (5% year-over-year), Data Center Group (10%), the Internet of Things Group (19%), and the Intel Security Group (6%).

The Non-Volatile Memory Solutions Group was down 1% year-on-year, but was up 17% sequentially.

Intel executive quotes are taken from the transcript of Intel's analyst call provided by Seeking Alpha .

— Brian Santo, Senior Editor, Components, T&M, Light Reading

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