Intel Corp. (Nasdaq: INTC) built itself into a corporate behemoth driving the PC market, with the enterprise portion of the market proving particularly lucrative. For years, the enterprise market provided the vast bulk of Intel's profits. Intel's enterprise business has been waning for some time, however, forcing the company into a major transformation, begun in earnest in 2016, in which it has been staking positions in what it expects will be high-growth markets in the future.
On the downside, Intel's enterprise market is still shrinking; it now contributes less than 50% of the company's overall revenues. Furthermore, it's going to keep on shrinking, Intel chief executive Brian Kzranich confirmed on Thursday's conference call with analysts. On the other hand, that business is still generating significant profit, he said, and Intel sees no need to abandon the market any time soon.
Meanwhile, most of the new markets Intel has targeted are growing, including the client, data center, IoT and security businesses.
Intel intends to spin off its profitable security operation, built around its $7.7 billion acquisition of McAfee in 2011; Intel was never able to find a way to drive McAfee's technology to the chip level.
Moving forward, Kzranich said, every business Intel pursues will be focused on moving, aggregating or analyzing data.
Intel, and most of its investors, have gotten used to Intel dominating market segments. Intel is facing a future in which dominance is far from assured. The new businesses -- including artificial intelligence, autonomous vehicles and 5G communications -- are all growth markets where Intel will have plenty of competition.
Intel has a near monopoly in data center servers, but that only gets the company's foot in the door when it comes to emerging data center opportunities that are still up for grabs. Those include silicon photonics, fabric switching (Intel's approach is called Omnipath), rack design and advanced storage (Intel calls its memory technology 3D XPoint [say "crosspoint"]).
Kzranich was especially sanguine about the new opportunities in data centers, however; he said he expects those businesses to eventually help drive Intel's growth rate back into double digits.
Intel is still huge, it has enormous resources to pour into innovation, and it has an extensive web of relationships to exploit, including key partnerships with AT&T, Verizon, SK Telecom and Korea Telecom -- relationships likely to prove highly valuable as they all move forward.
The company's formidable semiconductor fabrication prowess alone will keep it at the leading edge of chip technology for some time to come. Intel executives on the analyst call Thursday all contributed tidbits about what's coming. The company has begun producing a variety of chips in its new 14nm process, including FPGAs designed by recent acquisition Altera. The company is shipping 3D NAND memory ICs, soon to be followed by the 3D XPoint chips. These last will sample this year, with a full production ramp in 2018.
Perhaps inevitably, one analyst asked about business during a Trump administration, specifically about manufacturing in the US. Kzranich responded that Intel has historically sited half to two-thirds of its manufacturing in the US, and is currently the second-largest exporter in the US. Intel has no need to modify its strategies, Kzranich said.
The company reported a 2016 annual net income of $10.3 billion, 10% less than in 2015, and revenues of $59.4 billion, 7% more than in the previous year. For the fourth quarter, net income fell 1%, to $3.6 billion, while sales were up 10%, to 16.4 billion.
— Brian Santo, Senior Editor, Components, T&M, Light Reading