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Intel Posts Another Record Quarter and Year, Shortages to Recede in Second Half

(Image credit: Tom's Hardware)

Intel continued its string of successful financial performances today with a record-setting fourth quarter revenue and record yearly revenue. Intel posted an 8% year-over-year (YoY) revenue growth on strength in several of its business groups as it powered to $20.2 billion in revenue, capping a fourth consecutive year of record revenue. Much of the gain came on an impressively strong performance in data center sales, while desktops saw an expected 6% decline in yearly volume, which was partially offset by higher average selling prices (ASP).

Even with the company's stellar financial performance, a few questions weigh heavily going into the earnings call: How is competition from AMD impacting Intel, what is the status of the ongoing chip shortages and the extent of recent purported layoffs, and will Intel expand outsourcing of production capacity? Let's cut through the financial numbers to try to address those questions. 

Desktop PC/Server Sales and Impact of AMD Competition

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AMD is undoubtedly impacting Intel's desktop PC business, but Intel benefits from its sheer scale. Consider this: Intel's $10 billion in fourth quarter revenue from its PC-centric business alone far outweighs AMD's recent $1.8 billion quarterly revenue for its entire company (graphics and processors). Add in Intel's $7.2 billion in 4Q data center revenue to get a real sense of the challenge ahead of AMD. 

But that doesn't mean AMD, which holds the process node advantage for the first time in company history, can't make a dent in Intel's desktop dominance. Intel's client computing group (CCG) notched a 2% gain in revenue compared to last year, notching a 7% increase in processor sales quarter-over-quarter, but the company's desktop PC volumes were down 6% compared to the prior year. Higher average selling prices (ASPs) offset the lowered volume, so Intel still came out ahead in terms of revenue. The lowered volume likely stems from a combination of the ongoing shortages, which we'll cover shortly, and increased competition from AMD, but we won't know the impact of the latter until updated market share figures are released in a few weeks.

Intel upped its revenue guidance for next year, but did cite a waning Windows 10 upgrade cycle as one contributor to slowly falling PC sales projections next year. Intel also cited "increasing competition" as the source of its lowered PC revenue projections for the second half of the 2020, but true to the company's style, it didn't mention AMD by name. 

Intel's data center group (DCG) proved to be its biggest surprise, with a whopping 19% quarterly increase in revenue to $7.2 billion propelled by a 48% YoY sales increase to cloud service providers. Unit volumes for the data center group improved 12% on the quarter while average selling prices increased 5%. AMD's EPYC Rome processors are obviously stellar performers, but Intel reiterated that it has continued to focus on minimizing the impact of shortages to its Xeon lineup. Intel's sales figures don't indicate any significant impact from EPYC yet, though we won't know if an expanding market has also benefited AMD until next week. 

Shortage Status Improving, 10nm Production

Intel says that it continues to suffer from shortages that have hindered its sales in the desktop PC segment, but noted that it had invested record levels of capex in 2018 and 2019 to address the issue. That ultimately resulted in a "double-digit" increase in production capacity in the second half of 2019 (compared to the first half). 

Intel plans to increase its 10nm and 14nm wafer capacity by 25% in 2020, but said demand remains high. That means the shortage will persist until the second half of the year when Intel can begin to fully restore supply of its "small-core" processors (i.e., the low end processors that have suffered as Intel focuses on assuring supply of larger and more profitable models). 

Intel says its 10nm yields are "above expectations," which has become a familiar refrain from the company. Intel CEO Bob Swan touted that nine products built on the 10nm process will come to market in 2020, including Tiger Lake, the company's first discrete GPUs, Snow Ridge, ASICs for AI workloads, and Xeon processors. On the latter, Swan reiterated that the company will begin producing Ice Lake processors in the first half of the year, with volume shipments commencing in the second half of 2020. In either case, Swan still tempered expectations for the 10nm node, saying that 14nm would still consist of the majority of the company's shipping processors throughout 2020. 

Intel is also already investing heavily in 7nm production and will continue that investment throughout 2020 and into 2021. Swan also noted that the 7nm Ponte Vecchio GPUs are on track for the fourth quarter of 2021. Ponte Vecchio will serve as the lead vehicle for the 7nm node, so it could be 2022 before we 7nm desktop processors come to market. 

Intel "Layoffs"

Reports of large-scale Intel layoffs have dominated the recent news cycle, but the company hasn't confirmed any large workforce reductions. Those reports didn't come up during earnings call, but Intel issued the following statement to Tom's Hardware: 

"Changes in our workforce are driven by the priorities of our business, which we continually evaluate. As we move into 2020, our business units are focusing their resources on areas where we have the greatest opportunity for growth and, as part of that, some are planning to eliminate roles associated with projects that are no longer priorities. Wherever possible, we’ve transitioned employees or teams within the company to areas of business need, and we expect this to impact less than 1% of our global workforce, subject to local requirements. We are committed to treating all impacted employees with professionalism and respect, and we continue to hire for critical skills, with more than 1300 positions open in our key locations in the US and globally."

These reductions appear to be the result of a soft restructuring of some of Intel's business groups. Given Intel's rock-solid financial performance, there doesn't seem to be an indication of a large layoff in the future. 

Intel Outsourcing

Intel has long outsourced a significant portion of its silicon production to third-party fabs, and CEO Bob Swan reiterated that tactic isn't changing any time soon. Intel currently outsources between 20 to 25% of its overall production, but restricts outsourcing to non-CPU products. In response to a question if Intel plans to expand its outsourcing programs, Swan responded: 

"...the evaluation of what we do inside and what we do outside is a full-time effort. We'll continue to do it, we'll continue to prioritize where we can get the best, most efficient output, and make those decisions at the time."

Thoughts

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Intel appears to be firing on all cylinders as it heads into 2020. The company also experienced growth in a few of its other segments, with IOTG revenue up 13% and the storage arm (NSG) notching a 10% improvement (albeit while operating at a loss). Intel's programmable solutions group (PSG) was the only blot on the company's ledger, with the 17% decline in revenue attributed to soft sales in embedded applications. 

Intel projects it will generate $19 billion in the first quarter of 2020, an 18% year-over-year increase, and $73.5 billion for the year. That signals the company is confident in its prospects, even in the face of heightened competition. 

During a recent investor conference, the company cited receding margins in the future as it grapples with tougher competition, and the company did drop 3.2 pts of non-GAAP margin on the year, bringing it to 60.1%. That's still plenty profitable in the eyes of most companies, and indicates that Intel has some room to become more competitive on pricing as it debuts its new desktop and data center processors. It also has ~$12 billion in cash reserves. With recent gen-on-gen price cuts to Intel's HEDT lineup suggesting there is more to come, we could see further price reductions when the Comet Lake processors arrive as Intel seeks to protect its position.  

  • hannibal
    You just have to wonder how much worse Intel should be doing so that there would be some decline in Profit... They Are still printing money !
    Reply
  • Rdslw
    hannibal said:
    You just have to wonder how much worse Intel should be doing so that there would be some decline in Profit... They Are still printing money !
    OFC they are. They just COULD do way better. With how they handled last decade they could absolutely grab 90% of the 400 million devices to be sold this year, but they cannot handle the market, and they ride the fame they made, and this will stop some day.
    "However, Dell and HP have recently lowered their forecasts due to Intel’s CPU supply shortages."
    so market is loosing $ because intel cannot satisfy them, its double loss for them as
    $ is lost
    everyone searches for alternative as nobody want to just wait loosing $.Which forces even most hardcore intel loving companies to look at alternatives.
    Reply
  • JayNor
    Intel is producing Tiger Lake on 10nm+ process, according to the cc. Leaked benchmarks show comparable single core performance to 3950x by a 28W Tiger Lake U. So, it looks like Intel has some nice gains in 10nm+. On density, they were already comparable to tsmc 7nm. These Tiger Lake chips ship to OEMs this summer, according to CES comments.

    https://www.notebookcheck.net/Quad-core-Intel-Tiger-Lake-processor-outscores-AMD-s-Ryzen-9-3950X-in-Geekbench-single-core-test.451119.0.html
    Reply
  • JayNor
    there is a transcript of the cc here:
    https://seekingalpha.com/article/4318803-intel-corporation-intc-ceo-bob-swan-on-q4-2019-results-earnings-call-transcript?part=single
    Reply
  • jimmysmitty
    hannibal said:
    You just have to wonder how much worse Intel should be doing so that there would be some decline in Profit... They Are still printing money !

    And they will most likely continue to print money. Enthusiasts need to remember that we are a small market and AMD gaining market share here and in entry level servers/HPCs is not the big fish.

    JayNor said:
    Intel is producing Tiger Lake on 10nm+ process, according to the cc. Leaked benchmarks show comparable single core performance to 3950x by a 28W Tiger Lake U. So, it looks like Intel has some nice gains in 10nm+. On density, they were already comparable to tsmc 7nm. These Tiger Lake chips ship to OEMs this summer, according to CES comments.

    https://www.notebookcheck.net/Quad-core-Intel-Tiger-Lake-processor-outscores-AMD-s-Ryzen-9-3950X-in-Geekbench-single-core-test.451119.0.html

    Not surprising as its using Willow Cove which is a cache redesign.

    However I think Golden Cove would be the one to watch for as its supposed to be the performance jump.
    Reply
  • Soaptrail
    Does anyone believe them anymore when they state a date for the shortages to be over?
    Reply
  • jimmysmitty
    Soaptrail said:
    Does anyone believe them anymore when they state a date for the shortages to be over?

    I don't find it hard to believe considering they are going to be rolling out more 10nm based CPUs, server and mobile, and plan to have FAB 42 up and producing 7nm by next year. That should alleviate 14nm.

    Then we also have Forevos based products which will be able to mix and match process tech as needed. Should make it so they are not relying on a single process tech for everything.
    Reply
  • st379
    How can it be when I see in amazon in many countries the ryzen sell so good?
    Is it because of oem system, notebooks and servers?

    Would really appriciate an answer.
    Reply
  • jimmysmitty
    st379 said:
    How can it be when I see in amazon in many countries the ryzen sell so good?
    Is it because of oem system, notebooks and servers?

    Would really appriciate an answer.

    Because the enthusiast DIY market is just a small sliver and a much lower margin market than markets like mobile, which AMD just released a competitive part but will meet resistance with Tiger Lake, and HPC. Intel has focus in a lot of markets AMD does not such as AI and FPGA.

    You cannot use the enthusiast market as a benchmark for sales.

    One aspect to also remember is brand recognition and trust. Intel markets way more than AMD, especially in the past few years, and outside of our world people do not know AMD as well as they do Intel. Most people couldn't case that they can get 16 cores in a desktop as a quad core will do them just fine. When they purchase a laptop they tend to focus on it being light, thin and have good battery life, not that it has 8 cores etc.

    I have said it before and will say it again, we are but a sliver of the total PC market and what we buy is never indicative of the world at large.
    Reply
  • st379
    I saw it in amazon in lots of countries but i unsderstand the answer.
    Btw I am not in the US and i think most of the people do know AMD even if they don't really check what they buy.
    I also remember that i've read that intel has 85% of the market share in mobile.
    I guess it's explain it and hopefully AMD will gain some marketshare in notebooks.
    Competition lowering prices :) .

    Thank you for your answer.
    Reply