Client Computing Group’s fiscal 1Q16 performance

Intel’s (INTC) CCG (Client Computing Group) business saw revenue growth of 2% on a YoY (year-over-year) basis, reaching $7.5 billion despite its 15% decline in volume due to a 19% increase in ASP (average selling price). The desktop ASP rose by 6% YoY, whereas the notebook ASP remained flat. This probably suggests that the strong demand for gaming and other high-end processor segments witnessed in fiscal 4Q15 continued in fiscal 1Q16 as well.

Still, this 2% growth was below the analyst expectation of 8.2% growth, with global PC sales falling even more than expected.

Behind the Low Revenues of Intel’s Computing Group

Mobile segment

CCG’s operating profit rose 34% YoY to $1.9 billion in fiscal 1Q16. Intel realized cost benefits from the 14nm (nanometer) technology, and its mobile margins improved. This was evident as tablet volume fell by 44% YoY while ASP rose “significantly.”

There have been rumors that Intel has secured an order from Apple (AAPL) to supply LTE modems for the iPhone 7, which will be launched in September 2016. Even if this is true, it would only bring 1.5%–2% growth in Intel’s mobile earnings, according to CLSA Securities analyst Srini Pajjuri. This rumor has played negatively for Qualcomm (QCOM), which supplies LTE modems for all Apple products.

PC market weakness

According to Gartner, PC shipments fell by 9.6% YoY in 1Q16. Micron Technology’s (MU) revenue from its computing and mobile segment fell by ~40% YoY in fiscal 2Q16, which ended March 3, 2016. Notably, the SPDR S&P 500 ETF (SPY), which has exposure to the stocks listed in the S&P 500 Index, has 3.19% exposure to AAPL, 0.82% to INTC, and 0.42% to QCOM.

Intel expects PC sales to see a high-single-digit drop in 2016. Amid the slowing PC and mobile market, Intel has adopted a segmentation strategy in which it will increase its exposure in high growth areas of gaming, enterprise computers, and tablets.

In the next part, we’ll look at the performance of Intel’s Data Center Group in fiscal 1Q16.

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