Intel – Only a Tablet Can Cure Ailing Revenues
2014 marks a shift for Intel, as it expects revenue growth to remain flat next year, and is correspondingly trying to change its strategy by focusing on smartphones and tablets, and produce chips for other manufacturers
Intel Corporation (INTC), the leader in microprocessors for PCs, lagged behind in the smartphone and tablets markets by missing on the bandwagon, and concentrating on the declining PC market. The company lowered its guidance for 2014, bringing price down by 5.4%. Unlike his predecessors, Brian Krzanich, Intel's CEO, openly accepts the company’s lost position and is ready to manufacture chips for other chipmakers in order to capitalize on the competitive advantages that Intel still enjoys in the semiconductor industry.
Lowered guidance and missed revenue estimates have become prevalent among traditional tech giants. Earlier this month, Cisco Systems, Inc. (CSCO), the data networking equipment leader, lowered its guidance and expects an 8-10% decline in its revenues due to headwinds in emerging markets and slow order growth from service providers. International Business Machines Corporation (IBM), another tech giant, missed on revenue estimates consecutively for the sixth quarter due to a decline in orders from its growth markets. Microsoft Corporation (MSFT) did not lower its guidance for this quarter—having learnt its lesson in the preceding quarters, it was quick at changing its strategy so as to avoid future declines.
Intel expects flat revenue growth in 2014. The company earns 64% of its revenues from PC Client Group (PCCG), which makes microprocessor units for personal computers. Because of the rampant decline in the PC industry, Intel expects revenues from PCCG to decline by mid-single digits in 2014. Intel CFO Stacy Smith said PC industry is declining but it has started to show signs of stabilization amid the favorable adoption of tablets in the emerging markets. However, the 9% growth in chips for servers will offset the decline, causing flat revenue growth for the company. Intel expects total revenues to be $52.6 billion in 2014, which is below the consensus estimates of $53.7 billion whereas gross margins are expected to be in-line with the consensus estimates of 55-65%.
The company is ramping up its chip production for smartphones and tablets. It expects to roll out two chips for smartphones, namely SoFIA, the low-end version, and Broxton, the high-end version. In addition, the company expects to win sales from the big suppliers in the smartphone market instead of catering to everyone in the market. In the tablet market, Krzanich promises to quadruple the number of Intel-powered tablets by 2014 as the devices near a price of below $100.
Candid acceptance from Krzanich about Intel’s current market positioning, and his strategy of opening up of technology for other chipmakers will help Intel utilize its capacity and at the same time provide a source for revenue generation. Intel may not ever be able to regain its position as the market leader but we believe that it will be able to grow its business as it gains contracts from some of the biggest suppliers of microprocessors.