Intel Depends on DCG and IoT for Future Growth

Intel’s future growth

In 2Q15, Intel’s (INTC) DCG (Data Center Group) and IoT (Internet of Things) segments grew to $3.9 billion and $559 million, respectively. Their revenue rose by 10% and 15% in 2Q15. Together, DCG, IoT, and NAND business generated ~40% of the company’s revenue while their contribution to the overall operating profit rose to more than 70%. Intel’s 3D NAND products, in collaboration with Micron Technology (MU), are making their entry into the market in 2H15.

Intel Depends on DCG and IoT for Future Growth

New platforms and products could boost PC demand

In its 2Q15 earnings release, Intel stated that the company has qualified its sixth generation Core products, Skylake, for production. Skylake is Intel’s next generation processor built on a 14 nm (nanometer) manufacturing process. It’s targeted towards the PC market. Intel’s CEO Brian Krzanich said, “We expect the launches of Skylake, Microsoft’s Windows 10 (MSFT) and new OEM systems will bring excitement to client computing in the second half of 2015.” Intel believes that its collaboration with Microsoft to enhance the Windows 10 experience on tablets, combined with Skylake’s arrival, will revive demand in the PC market.

Intel also expected that the introduction of its third 14 nm product, Kaby Lake, will be in 2H16. Kaby Lake is built on Skylake micro-architecture “but with key performance enhancements.” Cannonlake is Intel’s first 10 nm product. It’s expected to launch in 2H17. The above-mentioned additions to its product roadmap are expected to enhance Intel’s performance and smooth the transition to 10 nm adoption.

3Q15 expectations

For fiscal 3Q15, Intel expects revenue of $14.3 billion, plus or minus $500 million. Intel reduced its full-year capex forecast for 2015 for the second time. It lowered its 2015 capex forecast to $7.7 billion, plus or minus $500 million. Earlier, it announced a reduction of its full-year capex forecast to $8.7 billion from $10 billion in April 2015.

You can consider investing in the VanEck Vectors Semiconductor ETF (SMH) and the Technology Select Sector SPDR Fund (XLK) to gain exposure to Intel. Intel accounts for about 19% and 3.55% of SMH and XLK, respectively.