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Intel's mobile chip revenue slips by $900m in first quarter

But PC chip sales and Internet of Things revenues are up
Wed Apr 16 2014, 12:26
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CHIP GIANT Intel reported its first quarter financial results on Tuesday, revealing a steep drop in mobile chip sales as the firm struggled to compete with smartphone and tablet chip vendors such as Qualcomm.

The firm said its smartphone and tablet chip business posted a quarterly operating loss of more than $900m as sales plunged 61 percent.

Intel Northern Europe territory manager Patrick Bliemer told The INQUIRER that the slump in mobile chip sales is attributable to the fact that the firm still new to the mobile chip market.

"[The decline is] part of the investment we are making to break into the tablet market, it's not going to be something that will continue. It's more of a shorter term action to be cross competitive," he said.

He said that because the firm is new to the mobile arena, it's simply going to take time for the chip giant to gain customer trust in mobile and built up its reputation as a smartphone and tablet chip provider.

He explained that the existing generation of Intel powered mobile products shipping now requires more components on the chipset, which in turn is leading to higher costs, and he said that the firm needs to offset these costs for the time being and that subsidy will recede with the next generation of products.

"We are making huge investments in research and development to get the right products. If you look on the SSC and microprocessor level, we are very competitive," he added, saying that Intel will continue to strengthen its position in the mobile market.

"Next year there'll be a higher level of integration with SoC, which will further lower material costs," he added.

The drop in mobile chip sales is in line with what the chipmaker said late last year, when it admitted it was late to the smartphone and tablet game, and missed an opportunity by sticking with the declining PC market instead of investing in the massive popularity of the iPad and other tablets that run on chip designs from rival ARM.

Speaking at the firm's annual investor relations day in November, Intel chairman Andy Bryant said Intel was "paying the price" for not recognising the market shift from PC towards tablets, which thus allowed rivals to get a foothold in the mobile sector.

However, Intel's mobile business is still a relatively small part of the company and its personal computer processor arm is showing signs of improvement after a record slump.

Intel posted first quarter net earnings of $1.9bn, or about £1.2bn. First quarter revenue was $12.7bn, compared with $12.5bn in the same quarter a year ago. The chip giant's higher first quarter sales and revenue forecast could suggest that the PC market is stabilising.

Nevertheless, the news that Intel's mobile arm is suffering is a setback for the firm. CEO Brian Krzanich admitted in an investor meeting in November that mistakes had been made and said that the firm had been "too insular" in recent years.

"We want an outside-in view, we want to be sensing. We'd become insular, we'd become focused on what was our best product versus where the market wanted to move," Krzanich said during his presentation.

"We will embrace where the market moves, that's one of the big changes that's occurring," Krzanich said, suggesting that the declining PC business will become a springboard for Intel's new technologies, such as the focus on the Internet of Things, which the firm said it is profiting from in its first quarter financial report.

Tuesday's first quarter financial report was the first time Intel disclosed numbers for an Internet of Things operating segment, claiming revenues for the business of $482m, up 32 percent from the same quarter the previous year.

Bliemer explained that this is simply due to more devices becoming connected that weren't before, such as coffee machines, and he said that revenues are expected to grow as wearables become increasingly more popular. µ

 

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