Editor’s note: Intel holds the line on processor average selling price in 3Q17, deflecting threats from competitors and ‘good enough’ computing while getting a boost from Internet of Things business, says Technology Business Research Analyst Daniel Callahan.
HAMPTON, N.H. – Intel (Nasdaq: INTC) in its earnings report last week that sent shares to a record high grew revenue to $16.1 billion in 3Q17, a year-to-year increase of 2%. Client Computing Group (CCG) maintained its position as the primary source of Intel’s revenue at 54.7% of total revenue, but revenue declined 0.4% year-to-year in 3Q17 to $8.9 billion.
The decline is attributable to notebook platform volumes and ASP remaining flat year-to-year and desktop platform volumes declining by 6%, with ASP again flat year-to-year in 3Q17. Operating margin for CCG increased 320 basis points year-to-year to 40.6%.
Data Center Group followed at $4.9 billion, 30.2% of total Intel revenue, up 7.4% year-to-year in 3Q17. Data center platform unit volumes increased 4% year-to-year, while ASPs grew 2% year-to-year this quarter.
- VIDEO: Intel making every device “smart” – watch a video overview at https://www.youtube.com/watch?v=azdQ0pzjPEs
Internet of Things (IoT), while a smaller piece of Intel’s overall revenue, again showed strong growth at 23.2% year-to-year to $849 million in 3Q17. However, IoT operating margin declined from 27.7% in 3Q16 to 17.2% in 3Q17, a sliver in comparison to CCG’s operating margin. TBR believes Intel is spending extra resources on R&D and SG&A, as well as tackling how to go to market, which contributes to the margin decline. IoT is a key growth area for Intel, and it does not want to fall behind like it did with its mobile and wearables businesses.
Another revenue success story is Intel’s Non-Volatile Memory Solutions Group, which achieved 37.3% growth year-to-year to $891 million in 3Q17. However, its operating income remains negative at a loss of $52 million. Despite this, the group’s operating margin climbed from -20.6% in 3Q16 to -5.8% in 3Q17, indicating this segment will turn to positive operations in the near future.
Lastly, Programmable Solutions Group increased 10% year-to-year to $469 million in 3Q17, attributed to loss of business in data center and wireless segments and its operating margin increase from 18.4% in 3Q16 to 24.1% in 3Q17.
Intel’s operating income increased 14% to $5.1 billion in 3Q17 despite investments in its growth areas. TBR believes it is due to profitability improvements across its business segments as well as strategic cost cutting, such as the company closing its wearables business in July 2017.