Another Quarter, Another Revenue Record For Intel
The PC Client Group (think desktops, netbooks, and notebooks) grew by two percent in Q2 with record mobile shipments. Server revenue, which was extremely weak in 2009, has begun to recover; revenue in the Data Center Group was up 13 percent compared to Q2. Microprocessors ASPs rose slightly and the company reported a gross margin of 67 percent, above the predicted 62-66 percent range.
Once again, it's almost impossible to locate a weak chink in Intel's armor. According to Intel's CFO, Stacy Smith, a significant percentage of the company's strong performance was thanks to business purchases. "We are now starting to see clear signs of enterprise customers investing in computers, particularly in laptops," Smith said. "It is a strong overall market." Company CEO Paul Otellini chimed in on this point as well, noting that "Strong demand from corporate customers for our most advanced microprocessors helped Intel achieve the best quarter in the company's 42-year history." Growth in foreign markets was also positive, despite early slowness--Intel is forecasting solid results in both Europe and China, despite earlier fears that the Euro crisis sparked by Greece could negatively impact the company's performance.
Atom's Unexpected Resurgence
If you recall our Q1 report on Intel's earnings, you'll remember that an unexpected 19 percent decline in Atom revenue was the only thing that marred that quarter. Smith's explanation for the Q2 drop was that it was caused by "inventory reductions after a strong consumer-driven fourth quarter." Given the size of the decline and the fact that Intel hadn't previously forecast any such issue, the general consensus in the press was that consumers were opting for more expensive notebooks as the economy improved. Here at HH we acknowledged that possibility, but never felt it explained the drop—unemployment remains extremely high across the US, and the economy hadn't sprung back all that strongly.
Intel plans to put Moorestown into a wide range of devices, from "Candybar" compact handhelds up to tablets.
We therefore posited that part of the problem was Atom's age and unchanged performance between Q2 2010 and Q2 2008. When Intel announced shortly thereafter that it would introduce a dual-core netbook Atom processor later this year, it seemed to validate our hypothesis. According to Intel, however, Q1's 19 percent drop in Atom shipments was almost entirely reversed by a 16 percent shipment increase in Q2. It's possible, however, that the increased sales reflect the sales of Atom N550 processors to various OEMs. The N550 launch will be the first major performance increase netbook-based Atoms have ever received; OEMs and Intel alike maybe stockpiling processors to ensure the shortages that plagued 2008 won't be an issue this time out.
This is exactly the sort of quarter investors like to hear about—no surprises, no bad news, and no product delays. AMD will give its own quarterly update tomorrow evening; we'll see if Sunnyvale shares the optimism and improved earnings of its chief competitor.