Editor’s note: Andrew Smith is an analyst with Technology Business Research.

HAMPTON, N.H. – Another quarter of strong performance within Intel’s (Nasdaq: INTC) PC Client Group helped catalyze 8% year-to-year growth in overall revenue, to $14.6 billion.

The PC Client Group continues to report better-than-expected numbers thanks to a resurgent market, accounting for 63% of Intel’s total revenue in 3Q14, an impressive 9% growth year-to-year. Outside the PC Group, Intel continues to pursue its macro-level strategy for growth focused on provisioning for cloud, big data, mobile devices, and Internet of Things (IoT).

Intel’s Data Center Group revenue grew 16% year-to-year, which Intel attributed in part to the success of their growth strategy, focused on delivering products for a wider variety of devices and platforms, ultimately increasing portfolio diversity and breadth. TBR believes the release of Grantley server chips in early September, targeted to meet enterprise needs for key application workloads like data analytics, high-performance computing (HPC) and cloud services, also played a critical role in Intel’s success.

Tablet processor shipments, which have served as a bellwether for Intel’s Mobile & Communications Group performance, reached approximately 15 million units in 3Q14, and the vendor is on track to reach its goal of 40 million total tablet processor shipments by the end of 2014. However, the rise of Intel’s tablet market share has come at a price due to requisite subsidization, which the vendor classifies as contra revenue transactions.

Due to these additional costs, the Mobile & Communications Group brought in just $1 million in total revenue during 3Q14. TBR expects the Mobile & Communications Group to continue recording a net loss in 4Q14, and into the first half of 2015, as the vendor utilizes tablet processor subsidies as a strategy to quickly bolster its market share and become a more serious competitor in the tablet market alongside rivals like Qualcomm, Samsung and Apple. Intel is counting on the proliferation of its SoFIA chips among mobile and IoT devices to grow revenue in the Mobile & Communications Group in the long run. In the short-term, TBR expects Intel to foster alliances, like those with Rockchip, to drive cost efficient expansion of its SoFIA architecture in tablet and phone markets worldwide.

Intel is using Chromebooks to disrupt the traditional devices ecosystem

A key part of Intel’s PC strategy is continued investment in alternative OS PCs to drive revenue growth and offset Windows 8 demand challenges. Notebook platform volumes within Intel’s PC Client Group increased 21% year-to-year, and continued ASP declines of 10% over the same period indicate that the vendor is still pursuing a strategy focused on maximizing its addressable customer base by expanding its core PC business in less-penetrated vertical markets. Chromebooks allow Intel to deliver more microprocessors to a wider range of customer segments and industries, particularly education. The increase in Intel’s notebook processor volumes shows that the vendor is successfully expanding its market reach, and leveraging Chromebook features, such as strong battery life, portability, touch capability and integration with cloud-based Google Apps, to disrupt traditional PC markets dependent on Windows- and Apple-based operating systems.

TBR believes that Intel is also benefitting from Microsoft’s reduced licensing fees on PCs under $250, as well as the removal of license charges for smaller tablets and phones. In September, Google and Intel announced four new Chromebook models that utilize Haswell chips and will be sold by HP, Acer, Asus and Toshiba. Also in September, HP launched its Chromebook 11, which utilizes Intel’s Bay Trail processor, displacing incumbent Samsung’s Exynos 5 ARM-based chip. This continued progress with leading PC OEM’s shows that Intel is dedicated to pursuing chip sales through new Chrome devices in order to diversify its revenue base and appeal to market demands for lower cost and increased mobility. TBR expects Intel to continue this strategy despite declining ASPs and the tighter margins experienced within the lower-priced Chromebook market.

Intel is strategically positioning itself for the Internet of Things

3Q14 saw continued dedication from Intel to grow its footprint in developing IoT markets. Intel’s Internet of Things Group accounted for 4% of total revenue in 3Q14, growing 14% year-to-year. While the IoT Group is still a small percentage of Intel’s overall business, its development is top-of-mind for Intel executives. During the earnings call, Intel stressed the importance of its Atom architecture and the ability to connect everything from storage to IoT devices and wearables in order to diversify Intel’s portfolio. Intel embraces fast-growing technology areas such as IoT and mobile through partnerships and R&D investments. Intel’s most recent alliance with GE further highlights the vendor’s use of strategic alliances to provide IoT integration on its chips.

Intel plans to embed integration for GE’s Predix IoT management architecture in order to establish its presence at the forefront of enterprise applications and platforms designed for IoT integration. In September, Intel also unveiled Edison, a processor with built-in wireless capabilities that can be utilized within a number of small, sensor-based devices. TBR believes Intel will continue to focus R&D spend on IoT initiatives, bolstering its capabilities for integration and deployment in the short-term through strategic partnerships like GE.

Supplementing its IoT strategy, Intel launched its XMM 6255 modem in an effort to provide for increasing network connectivity required by the billions off connected devices expanding within the IoT market. In August, Intel also disclosed details of its newest, 14nm microarchitecture to be deployed in a wide range of products including IoT devices. TBR believes Intel will continue to use its IoT strategy to weave together and coordinate its increasingly wide breadth of product development initiatives focused on data analytics, software-defined and cloud capabilities.

PC market windfalls allow Intel to quickly execute changes

TBR believes several variables are involved in the continued PC market turnaround, including form-factor changes, readjusted price points and a growing segment of aging systems, especially those still running Windows XP. During its earnings call, Intel continued to emphasize production and distribution of 14nm Broadwell Core-M processors, and the new chip’s ability to enable a new class of 2-in-1 form factor devices, as well as ultra-thin, fanless, high-performance systems.

However, TBR believes the most important result of the PC market turnaround for Intel is the increased level of financial tolerance and freedom it provides Intel as the vendor drives growth across a wider variety of products for mobile, data and cloud oriented markets in order to generate faster revenue growth.

(C) TBR