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Mobile/Wireless Components

Mobile Losses of $4.2B Dent Intel's Profits

Intel unveiled the full financial impact of its mobile market share growth strategy late Thursday when it announced a full financial year operating loss of $4.2 billion for its Mobile and Communications Group, which reported full-year revenues of just $202 million, down 85% year-on-year.

Fortunately for Intel Corp. (Nasdaq: INTC) it has the scale to be able to take that hit. Its 2014 group revenues totaled $55.87 billion, up 6%, while its operating profit grew by 25% to $15.35 billion. Group net income for the year to December 27, 2014, was $11.7 billion, up by 22% compared with a year earlier.

Notable revenue and operating profit gains were made by its Data Center and Internet of Things groups.

Table 1: Intel Revenues by Division for Q4, Full Year 2014

Revenues in $ millions Q4 2014 Q4 2013 Full year 2014 Full year 2013
PC Client Group 8,871 8,616 34,669 33,270
Data center Group 4,091 3,262 14,387 12,161
Internet of Things Group 591 538 2,142 1,801
Mobile and Communications Group -6 326 202 1,375
Software and services operating segments 557 591 2,216 2,190
Other 617 501 2,254 1,911
Total 14,721 13,834 55,870 52,708
Source: Intel

Table 2: Intel Operating Profits by Division for Q4, Full Year 2014

Operating profit/loss in $ millions Q4 2014 Q4 2013 Full year 2014 Full year 2013
PC Client Group 3,979 3,374 14,635 11,751
Data center Group 2,230 1,603 7,279 5,569
Internet of Things Group 185 208 616 550
Mobile and Communications Group -1,110 -874 -4,206 -3,148
Software and services operating segments 25 30 55 24
Other -856 -792 -3,032 -2,455
Total 4,453 3,549 15,347 12,291
Source: Intel

While its group numbers hit record highs, it's the performance and strategy at the Mobile and Communications Group (MCG), which develops chips for tablets and smartphones (as well as networking components such as baseband processors and radio frequency transceivers), that is attracting most of the attention. Intel has been clear about its intentions, noting at its annual investor meeting in November 2014 that it has been subsidizing its mobile chips to gain market share. (See Intel Chief Defends Huge Mobile Losses.)

Those subsidies have clearly gone to an extreme level, as Intel's financial report shows that the MCG recorded negative revenue of $6 million for the final quarter of 2014. (Was it paying some customers to take its chips?) The operating loss for that quarter alone was $1.11 billion.

The strategy has given Intel a position in the tablet chip market, though: The company exceeded its target for the year, shipping 46 million tablet chips compared with its previously stated goal of 40 million. Intel CEO Brian Krzanich noted on the company's earnings call late Thursday that Intel believes it can grow at the same pace as the overall tablet market, and possibly even faster.

In addition, Krzanich is aiming to reduce MCG's losses by $800 million in 2015 now that the company has established itself in the tablet market, gained some scale and is finally introducing its lower-cost SoFIA mobile system-on-a-chip (SoC) for tablets and smartphones, which Intel does not intend to subsidize.

How much visibility Intel will provide into MCG's costs and operating performance in the coming year is unclear, though, as the unit is being merged with the PC Client Group, the largest single group within Intel in terms of sales and operating profits.

On the company's earnings call late Thursday, the CEO noted that the 3G version of SoFIA is currently going through carrier certification processes ahead of commercial market introduction, while a 4G LTE version will be introduced in the second half of 2015.

For more on what was said during the Intel earnings call, see this Seeking Alpha transcript.

Intel's share price ended Thursday at $36.19, but dipped by about 3% in after-hours trading following the conference call as the company's guidance for the first quarter was not as good as Wall Street was expecting.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

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pcharles09 2/20/2015 | 10:55:37 AM
Re: The scale to take a long-term view @smkinoshita,

Quite frankly, they shouldn't be!
smkinoshita 1/31/2015 | 4:33:06 PM
Re: The scale to take a long-term view Excellent point!  And we're not just talking about the I.T. departments of businesses, but the I.T. departments of those providing consumer services!  I imagine many providers would prefer their users not be in charge of their own security.
pcharles09 1/31/2015 | 4:15:32 PM
Re: The scale to take a long-term view @smkinoshita,

To add to your point, many IT departments want to rid themselves of the tedious management of too many devices. Put it all in the cloud & give everyone a tablet or laptop is alot easier to manage.
pcharles09 1/31/2015 | 4:14:21 PM
Re: The scale to take a long-term view @Kruz,

Gotcha... which is everything.
smkinoshita 1/31/2015 | 1:33:21 PM
Re: The scale to take a long-term view "When I was in college, we had a speaker that talked about the evolution of dumb terminals then personal computers then back to dumb terminals.

I guess now with devices getting smaller now, he may be right."

I think he may be right, too.  It's not just the smaller devices, it's the cloud that makes dumb terminals more feasible.  After all, a lot of users don't want the responsibility of knowing how to properly look after their I.T., they just want to use it.
Kruz 1/31/2015 | 10:33:19 AM
Re: The scale to take a long-term view Definitely. By that, I was referring to any ressource demanding activity.  
pcharles09 1/30/2015 | 6:43:05 PM
Re: The scale to take a long-term view @Kruz,

And It's not just processing. It's storage & centralized management made alot easier.
Kruz 1/29/2015 | 1:48:22 AM
Re: The scale to take a long-term view All the processing power should be relegated to the cloud eventually with terminal having remote access.
pcharles09 1/28/2015 | 10:37:01 PM
Re: The scale to take a long-term view @Kruz,

When I was in college, we had a speaker that talked about the evolution of dumb terminals then personal computers then back to dumb terminals.

I guess now with devices getting smaller now, he may be right.
Kruz 1/25/2015 | 2:47:16 PM
Re: The scale to take a long-term view As smartphones evolve, there will be no need for the current known pc or even tablet. there will be dummy terminals you can plug your smartphone on for faster productivity and better viewing angles: keyboard(until voice commands dominate) and Screen terminals(until holgrams emerge)...
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