Intel confirms Apple buyout in latest results
Chip maker announces sale in latest earnings report
Intel has confirmed the sale of its smartphone-modem to Apple in its quarterly results.
For the three-month period ending 29 June 2019, the chip maker beat analyst expectations despite reporting a three per cent year-on-year revenue decline of $16.5bn (£13.3bn).
We run through the numbers for the biggest takeaways from the manufacturer's latest results.
Apple takes a bite
Intel CEO Bob Swan confirmed recent reports that the firm was flogging its smartphone-modem chip business to Apple in a deal valued at $1bn.
Swan told investors on an earnings call that network infrastructure is one of the most important areas for the company, due to the upcoming 5G.
"The network cloudification that comes with 5G expands our opportunity in the core network and at the edge, as more data moves closer to where it is created," he said on an earnings call transcribed by Seeking Alpha.
"While the 5G network opportunity meets each of our investment criteria, the 5G smartphone opportunity does not. This is why we decided to exit the 5G smartphone modem business and conduct an analysis of our options for the remaining parts of that portfolio.
"This deal [with Apple] preserves Intel's access to critical IP we have developed. It enables us to focus on the more profitable 5G network opportunity where we are growing and winning share."
Datacentre down, PC up
Revenue in its datacentre business (DCG) declined 10 per cent year on year to $5bn, but despite this, it still came in ahead of the vendor's expectations.
Its PC business grew one per cent to $8.8bn in the quarter, with strong commercial sales. Swan expects its PC TAM to grow slightly this year.
"Over the last few years, we have dramatically expanded our served market, while the PC market was declining," Swan said.
"Our served market is now more than five times larger and growing faster and we have reallocated spending to expand our capabilities in higher-growth areas.
"We are evolving Intel Inside from a central processing unit (CPU) inside a PC to XPUs (ie CPU, GPU, FPGA, ASIC) inside everything that processes, stores and moves data. Big bets in 5G, AI and autonomous systems are an important part of this transformation."
Revenue from enterprise and government spending - a unit which comes under the DCG umbrella - fell 31 per cent year on year in the quarter.
Swan said that enterprise and government spending was particularly weak in China.
"Enterprise and government [spend] has been brutal through the first six months of the year," Swan explained.
"Q1 was really soft. Q2 was even softer. And while we don't like it, it's been pretty much in line with how we expected the first half and even the second half of the year to play out.
"Last year was really strong for enterprise and government…much stronger than we expected.
"We believed at the time that that was largely a function of increased digital transformation by CIOs, a favourable tax reform environment that gave them a little more capacity to spend. And we benefited from that tremendously last year.
"The first half of this year…I would say CIOs, broadly speaking, are a little more cautious as they go into the second half of the year - China is even worse than that.
"So our thoughts to the first half of the year and even going into the second half of the year is the enterprise and government environment won't get dramatically better."
Trade
Ongoing trade tensions between China and the US also affected Intel's business in the quarter, with Swan saying the company's forecast is more "cautious" than before.
"Tariffs and trade uncertainties created anxiety across our customers' supply chain and drove a pull-in of client CPU orders into the second quarter," he said.
"We also halted shipments to certain customers in response to the US government's revised entity list.
"After a thorough review, we were able to resume shipments of some products in compliance with regulations and the net impact on the second quarter was limited.
"While we hope and expect trade issues to be resolved, further tightening of export restrictions would come with revenue risk to our business.
"As we go into the second half, there's still a little bit unknown about how this China thing is going to play out. That's a big, important market for us and that's probably what makes me a little more anxious."
In spite of overall revenue decline, ongoing trade tensions and declines in important segments, Intel posted a revised, improved full-year outlook of $69.5bn.