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Mobile Business Hurts Intel’s Profits

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Dec. 4 2020, Updated 10:53 a.m. ET

Mobile segment’s losses

In the previous part of the series, we saw that Intel (INTC) failed to tap into the mobile revolution. The company did make several efforts to make its mark in the mobile space by acquiring IP (intellectual property) and investing in product research and contra revenue, but these efforts failed to deliver the desired results. Instead, it brought a $4 billion loss to the company.

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Mobile computing group’s performance

As the above graph shows, Intel MCG’s (mobile computing group) loss kept widening as the company sold its Atom processors at a discounted price while its operating expenses rose due to heavy spending on R&D (research and development). Losses from the MCG segment resulted in a 16% YoY decline in Intel’s operating income in fiscal 2012 and 2013.

Intel withdraws contra revenue

The MCG losses reached the tune of $4 billion while the revenue was just $202 million in fiscal 2014. It was then that the company withdrew contra revenue and merged the ailing MCG segment with its profitable PC Client Group to form CCG (client computing group) in fiscal 1Q15. The company aims to eventually cover the $4 billion loss. In fiscal 2015, it reduced the loss by $1 billion and now it aims to reduce another $800 million in fiscal 2016.

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Intel stops production of SoFIA and Broxton processors for mobile

Intel also reduced its spending on mobile segments between 2014 and 2016. Intel’s new president of IoT (Internet of Things), Venkata “Murthy” Renduchintala, stopped production of SoFIA and Broxton processors for mobile as the processors failed to gather traction in the market after the withdrawal of contra revenue. Qualcomm (QCOM) moved fast and grabbed Intel’s largest mobile customer, Asustek.

Mobile revolution slows

The exit from the Atom X series for mobile phones was a smart decision for Intel as the mobile revolution showed signs of a slowdown. The first annual decline in global smartphone shipments was reported in fiscal 1Q16, according to Strategy Analytics. Samsung (SSNLF) and Apple (AAPL) also reported their first YoY (year-over-year) decline in smartphone sales.

Next, we’ll look at the health of the global mobile industry and understand the new growth trends. The Semiconductor ETF (SMH) has holdings in 26 semiconductor stocks, including 13.5% in INTC and 7.3% in QCOM.

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