By Charles King, Pund-IT, Inc. October 31, 2018
The purported old Chinese curse, “May you live in interesting times” is occasionally apropos for the technology sector and some vendors. Over the past few months, the times have been particularly interesting and painful for Intel.
That began with the surprise exit of CEO Brian Krzanich whose resignation was requested by Intel’s board of directors after an internal probe found that he had engaged in a consensual relationship with a subordinate, which the company said violated its anti-fraternization policy. Since then, Intel shares have trended steadily downward until last week’s quarterly (Q3 2018) earnings report reenergized buyers.
The sources of Intel’s good fortunes, along with some unexpected bad news from competitors, is worth further consideration.
First the good news
So, what drove Intel’s quarterly results and shareholder optimism? Call it good news literally all around. The company saw solid performance across all of its business units, with double-digit growth in key product areas.
Those included PC-centric (PSG) revenues growing year over year (YoY) by 16% to $10.2B driven by particular strength in commercial and gaming systems, Data Center Group (DCG) sales growing by 26% YoY to $6.1B sparked by demand among cloud and communications service providers, and record revenues in the memory business (NSG) which was up 21 percent YoY to $1.1B.
Additionally, the Internet of Things Group (IOTG) also achieved record revenue. Excluding Wind River, which Intel divested in the second quarter, IOTG revenue was up 19 percent YoY on broad business strength. Intel’s Programmable Solutions Group’s (PSG) revenues grew 6% YoY with continued strength in the data center and strong organic growth. Finally, the company’s Mobileye organization also achieved record quarterly revenue of $191M, up approximately 50 percent YoY as customer momentum continued.
If you don’t follow Intel, this list likely contains significant surprises. That’s because despite steady efforts to broaden and deepen its solution portfolio and market focus, Intel continues to be seen and portrayed in PC- or data center-centric terms. There’s a certain logic in that viewpoint since those areas drove over 80% of Q3 2018 revenues.
But Intel also is realizing payoffs from significant investments in new and emerging areas. As those areas, as well as demand for new solutions, like AI-related machine learning and deep learning memory and data center technologies continue to expand, their growth is helping guard Intel against being blown off course by fickle winds in PC sales and trends.
It should also be noted that despite Brian Krzanich’s lapses in judgement and exit from the company, much of the effort to diversify Intel’s portfolio and development efforts came under his watch. Overall, Krzanich left Intel a stronger, more flexible and durable company than he found it. That’s something more IT CEOs would do well to emulate.
After the gold rush
So, what was the bad news Intel’s competitors suffered? It ran the gamut. Silicon vendors, including AMD, Texas Instruments and Western Digital have been roiled by the Trump administration’s trade war with China and 10% tariff on goods manufactured there. The President’s threats to raise tariffs to 25% on January 1st if a new trade deal isn’t signed by then is negatively impacting numerous tech companies dependent on Chinese manufacturing resources.
But the news from specific vendors also hasn’t helped their situation. AMD and NVIDIA have both been hit by falling fortunes of cryptocurrency firms that used their high-end GPUs for mining processes. Things took a further turn for the worse for AMD during its recent Q3 earnings call when the company offered weaker than expected guidance and said it was not as well prepared to take on Intel in data center solutions and sales as it once indicated.
Traders have not responded favorably, sending AMD shares down by nearly half and NVIDIA by nearly a third from their peaks a month ago. Those wild rides highlight the danger vendors face by focusing intently on highly attractive if narrowly focused markets.
Living in interesting times is more common than surviving and even thriving during the tumult. Studying Intel’s recent earning announcement provides good lessons for companies both in and out of Silicon Valley. The company is, after all, a manufacturing concern at heart though one employing some of the world’s most technologically sophisticated processes to create its goods.
But by growing its focus areas without diluting them and creating innovative offerings for new use cases and applications, Intel is also effectively insulating itself against unexpected, often unaccountable shifts that can stagger or even sink other companies. In the end, survival may depend as much on expanding one’s interests as it does on tempering them. That approach appears to be working very well for Intel.
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