Why Intel continues to make money while PCs nose-dive, in two words

Intel made its name in chips, but it's developed another business to keep growing even as the PC industry slips.

We normally think of Intel as the engine of the PC. But as Intel proved on Tuesday, the company can keep increasing revenue even as the PC market declines—and if it ever recovers, Intel’s business is poised to take off.

Why? Data centers.

Intel’s consumer processor division, called the Client Computing Group, still makes up close to 60 percent of its business—$8.51 billion in total third-quarter revenue, compared to $4.1 billion for its Data Center Group. But while CCG profits fell by 20 percent that quarter, Intel still recorded flat revenue because profits at DCG, which include SSDs and Xeon chips, are up 9.3 percent.

This week, IDC reported that PC shipments plunged 10.8 percent during the third quarter—heading into “terra incognito” or unknown territory, according to Crawford del Prete, IDC’s chief research officer, in an interview with CNBC. PC shipments in the third quarter fell 7.7 percent year over year to 73.7 million units, according to Gartner.

Intel, however, has been able to hold steady because of its healthy DCG numbers. “In a time period where PC units are down in high single digits... we still get enough growth from the data center and the memory business and the Internet of Company Things to pretty much tread water in terms of revenue growth,” Stacy Smith, Intel’s chief financial officer, said during a conference call Tuesday.

No longer just a PC company

Here’s the money quote: “If PC units are down in the mid-single digits, we actually grow at a pretty fast pace,” Smith added. “And if we get to where PC units are flat, we’re growing at a very fast pace.”

Intel, according to Smith, is “much less dependent on the PC segment than we historically have been,” he said. Instead, the company’s growth comes from the data center, and Intel continues to invest in memory and the Internet of Things as an additional growth driver.

Intel’s strength, of course, comes partly at the expense of rival AMD, which reports its own results on Thursday. For the second quarter, AMD’s revenues slipped below a billion dollars, together with a $181 million loss. “Strong sequential revenue growth in our EESC segment and channel business was not enough to offset near-term challenges in our PC processor business due to lower than expected consumer demand that impacted sales to OEMs,” chief executive Lisa Su said in a statement.

The bottom line: Intel has insulated itself from a declining PC business via a robust enterprise product portfolio. (Intel’s conservative forecast for that datacenter business slightly worried Wall Street, though, as its stock fell by less than 5 percent after the news.) AMD, on the other hand, has been unable to free itself from the PC market, and is being dragged down as a result.

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Mark Hachman

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