Client Computing Group
Intel (INTC) is transitioning from a focus on PCs (personal computers) to data. However, this does not mean that the company is exiting the PC market. It means the company has reduced its capital spending in the PC space and increased it in other growth markets. Intel’s CCG (Client Computing Group), which serves the PC and mobile markets, still accounts for 55% of the company’s revenue and 65% of its operating income.
CCG’s earnings in fiscal 2016
In fiscal 4Q16, Intel’s CCG revenue rose 4% YoY (year-over-year) to $9.1 billion, driven by high ASPs (average selling prices), strong demand for the 7360 LTE (long-term evolution) modem from Apple (AAPL), a rich product mix, and record shipments of Wi-Fi units.
In fiscal 2016, Intel increased its CCG earnings 2% YoY despite overall PC sales falling. It managed to grow in a declining market by segmenting products into gaming and high-end desktops. Its product leadership helped it command a premium price for its i7 cores, which reported record sales in fiscal 2016.
CCG’s operating profit rose 30% YoY to $3.5 billion in fiscal 4Q16 as Intel reduced its spending on PCs. The segment’s operating margin improved from 31% in fiscal 4Q15 to 38% in fiscal 4Q16. The CCG segment, which squeezes out as much profit as possible while investing little, is Intel’s cash cow.
Fiscal 1Q17 estimates
The CCG segment is likely to report a seasonal mid-single-digit decline in fiscal 1Q17. The segment’s profits are likely to fall as Advanced Micro Devices (AMD) has launched competitive products at reduced prices, forcing Intel to reduce its prices.
However, Intel is unlikely to enter a price war with AMD. Instead, Intel looks to launch more advanced products to cope with competition from AMD.
There are rumors that Intel may launch its HEDT (high-end desktop) processors and chipsets and its Coffee Lake microarchitecture a few months earlier than anticipated in response to AMD’s Ryzen 5 and 7 processors. We’ll discuss this in the next part of the series.