Intel announced its Q1 2016 results today, and at first glance you wouldn’t think they were anything to write home about. The company missed street estimates by $30 million on sales of $13.7 billion (a rounding error, basically). While its gross margin dipped somewhat and sales were down compared with Q4 2015, the PC market always turns in a weak first quarter. The company’s operating income and net profit were both basically flat — and given the shape of the PC market as a whole, you might think that turning in modest revenue growth compared to Q1 2015 would be welcome news.
In this case, however, appearances can be deceiving. Intel announced that it would fire up to 12,000 people across the globe, or roughly 11% of its workforce. This works out to approximately 1.2 AMDs, just to put that in perspective. The workforce reductions are necessary, Intel said, “to accelerate its evolution from a PC company to one that powers the cloud and billions of smart, connected computing devices.”
Intel went on to reiterate exactly where it feels the growth markets of the future will be. “The data center and Internet of Things (IoT) businesses are Intel’s primary growth engines, with memory and field programmable gate arrays (FPGAs) accelerating these opportunities.”
Missing, you might note, are any mention of the PC market or the company’s mobile efforts. ARM fans and general smartphone and tablet aficionados have snarked at Intel’s general failure to win positive traction for itself in these markets (at least, not without relying on contra-revenue shipments to do it), but it’s important to see the larger picture here. Intel began developing Atom all the way back in 2004, not long after it canceled Tejas, the ill-fated, Prescott successor that never saw the light of day. While it can be fairly criticized for some of its specific product decisions, clearly some of the executives at Intel saw how big mobile could be years before smartphones and tablets started eating the PC’s lunch.
We spoke to Anshel Sag, an analyst with Moor Insights & Strategy, for his opinion on what Intel’s layoffs and new focus on data centers, IoT, and memory technologies like 3D XPoint mean for the company. “Intel is making major cuts in their overall headcount; many people have seen this coming for years,” Sag said. “But ultimately, today’s earnings and restructuring show that Intel no longer considers itself a consumer company first and that it does not see growth for itself in the client computing business.”
We agree. Intel isn’t literally giving up on the PC space, but for decades the company has relied on the consumer CPU market to provide the bulk of its profits, even if other market segments were far more profitable on a per-unit basis. The company previously portrayed its client business as driven by a virtuous cycle of continuous investment that protected profits and drove engagement. Now, it’s claiming that other market segments will provide this growth.
Intel will continue to introduce next-generation CPUs, and it’ll clearly continue to market those devices as compelling upgrades. But the company is pivoting, trying to find spaces where it can earn the kinds of returns investors want to see, while cutting headroom anywhere else to prop its figures up in the meantime.
Incidentally, anyone who thinks Intel is sitting on spare PC performance it hasn’t released due to a lack of competition should take a hard look at this situation as proof for why it’s not true. If Intel could release dramatically faster hardware that consumers wanted to buy for the same reasons they kept buying in for more than 30 years, it would do so. The fact that it’s focusing on new business segments and firing thousands of people is proof that it doesn’t know how to return to the good old days of semiconductor scaling.
AMD will announce its own Q1 2016 results in several days. Don’t expect miracles or anything good.