IoT, Data Centers Prop Up Intel's Q2

Intel has reported declines in sales and profits for the second (April-to-May) quarter, although results beat expectations thanks to the performance of its data center and Internet of Things (IoT) divisions.

The semiconductor giant has been trying to offset a slump in the computer market through a greater focus on its other activities and boasted of success in these areas during the recent quarter.

"Second-quarter results demonstrate the transformation of our business as growth in data center, memory and IoT accounted for more than 70% of our operating profit and helped offset a challenging PC market," said Brian Krzanich, Intel Corp. (Nasdaq: INTC)'s chief executive, in a company statement.

Overall revenues fell by 5%, to $13.2 billion, compared with the second quarter of 2014, while net income dropped 3%, to $2.7 billion.

The setback hid improvements in the data center business -- where revenues rose by 10% to $3.9 billion -- and the Internet of Things division, which flagged a 4% increase in sales, grew to $559 million.

But revenues at the computing group, which account for nearly 57% of the total and also include sales of mobile devices, were down 14%, to $7.5 billion.

Intel expects to generate revenues of about $14.3 billion in the third quarter, which would be $300 million less than it made in the same period last year, and reckons full-year revenues will drop by 1%, having previously guided for a flat performance.

Intel's share price was trading up 1% on the NASDAQ on Thursday morning, a day after the results were published, but has fallen by 17.5% since the beginning of the year due to investor concern about the PC business.

"Worldwide GDP growth has slowed, especially in areas like China, where a lot of growth in PCs was occurring," said Krzanich during an earnings call with analysts, according to a Seeking Alpha transcript, when asked why the PC market was so weak this year. "But even in the mature areas like the US and Western Europe, that has caused it to slow down a bit more."

Nevertheless, Krzanich has expressed optimism that the launch of its new Skylake processor in the second half of the year, as well as the imminent release of Microsoft Corp. (Nasdaq: MSFT)'s Windows 10 operating system, will help to spur sales in the next two quarters.

"We expect the launches of Skylake, Microsoft's Windows 10 and new OEM systems will bring excitement to client computing in the second half of 2015," he said in his statement.

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Intel also talked up its recent $16.7 billion takeover of Altera Corp. (Nasdaq: ALTR), a programmable chip specialist, saying the integration of Altera's technology with its own IoT platforms would give rise to new products and capabilities. (See Intel to Buy Altera for $16.7B.)

"We believe we can enhance Altera's base FPGA [field-programmable gate array] ARM-based business substantially," said Krzanich, according to Seeking Alpha. "History tells us that the FPGA vendor who is first to a manufacturing process node enjoys a market segment share advantage over the life of that node."

Announced in early June, the Altera deal has been lauded by Heavy Reading analyst Simon Stanley as one that makes sense for both companies.

"Altera will use Intel fabs for the latest 14-nm FPGAs, while Intel gets FPGA technology so customers can customize their solutions for data center, mobile and other embedded markets where they want to compete with ARM," he said at the time.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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