Intel’s transformation to data-centric company begins to pay off
Intel (INTC), a leader in the PC and data center CPU (central processing unit) market, has been undergoing a multiyear transition from a PC-centric business to a data-centric business. This transition has begun to pay off. The continuous growth in data is increasing the demand for higher computing and memory to process, analyze, store, and share this data. Intel’s ventures into data-centric products such as memory, server CPUs, FPGAs (field programmable gate arrays), and autonomous vehicles are seeing growth.
Intel’s fiscal 1Q18 revenue
Intel’s revenue rose 8.6% YoY (year-over-year) but fell 6% sequentially to $16.07 billion in fiscal 1Q18, beating analysts’ estimates of $15.08 billion and its own guidance of $15 billion by a whole $1 billion. Intel’s 1Q18 revenue included $462 million in incremental revenue from the new revenue recognition standard the company adopted in the quarter. This new standard largely affected its PC and memory business.
The 8.6% YoY revenue growth was driven by strong double-digit growth in its data-centric business, particularly data center and memory. The company also reported a moderate 3% YoY increase in its PC business largely driven by a higher ASP (average selling price). Rival Advanced Micro Devices (AMD) reported 40% YoY growth in revenue as its computing and graphics segment almost doubled. This strong growth came as the company entered the high-end PC market and increased its overall ASP.
Intel’s 6% sequential revenue decline was a normal seasonal decline with the PC-centric revenue falling 8.3% and data-centric revenue falling 5%. Fiscal 1Q is a seasonally slow quarter for Intel and its rivals AMD and NVIDIA (NVDA) as the holiday season ends. However, 1Q18 has turned out to be an exceptional quarter for AMD and NVIDIA, as they witnessed strong demand for GPUs (graphics processing units) from cryptocurrency miners. This growth will likely offset the seasonal weakness.
During 1Q18, Intel was hit by the disclosure of Spectre and Meltdown flaws in the x86 and ARM architecture. There were fears that this flaw might delay consumer purchases and impact Intel’s 1Q18 revenue, but none of that happened. The company has been delivering software fixes for its products and is working to design and deliver products that have hardware fixes to these vulnerabilities by the end of 2018.
Intel expects the strong growth in the data center business to continue in fiscal 2Q18 and therefore it guided its revenue at $16.3 billion for the quarter, which represents a 1% sequential and 10.1% YoY growth. This projection is higher than the analyst revenue estimate of $15.6 billion for fiscal 2Q18.
As the transformation of the data-centric business accelerates, Intel also increased its full-year 2018 revenue guidance from $65 billion to $67.5 billion, representing a 7.5% increase from fiscal 2016. These earnings made analysts bullish on the stock, as its growth prospects look bright. Next, we’ll look at Intel’s profitability.
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