Intel Beats Street With $14.5 Billion In Revenue Against Backdrop Of PC Market Softness

Late last week, market research firms IDC and Gartner handed down the latest PC shipment numbers for Q3 2015. It didn’t come as a surprise that IDC estimated PC shipments of 71 million, representing a 10.8 percent year-over-year (YoY) decline, while Gartner’s numbers were within the same ballpark with estimates of 73.7 million PCs sold, marking a 7.7 percent YoY decline.

With that in mind, we can look at Intel’s third quarter financials with a bit of perspective. Intel’s third quarter revenue was $14.5 billion, while operating income and net income came in at $4.2 billion and $3.1 billion respectively. Earnings per share was listed at 64 cents.

Those are all respectable numbers and came in right in line with Intel’s guidance and the forecasts from Wall Street. Revenue was flat compared to the same period last year ($14.5 billion versus $14.6 billion), while operating income ($4.2 billion) and net income ($3.1 billion) were down 8 percent and 6 percent respectively.

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Intel officially launched its sixth generation Core processors (Skylake) during Q3, but we’re just now seeing a steady rollout of notebooks and desktops using the processors. So while things may be a little slow for Intel right now, we expect things to start picking up during Q4 as OEM partners ramp up new designs based on the Skylake platform and the holiday shopping season starts kicking into high gear.

With that being said, the traditional consumer upgrade cycle with the release of a new Windows operating system may be a bit skewed this time around, with many people are eligible for free upgrades to Windows 10 (i.e., those running a licensed copy of Windows 7 or Windows 8). Customers are essentially getting a “new” Windows experience for free without having to make any upgrades on the hardware front. It’s a win for consumers, not so much for component manufacturers like Intel, where a refreshed expience on an arguably more efficient operating system can prolong the magic and postpone the sale.

Intel’s Client Computing Group saw a 7 percent decline in revenue YoY from $9.2 billion to $8.5 billion, making it the hardest hit of Intel’s divisions. In addition, unit volumes compared to Q3 2014 were down 19 percent YoY. The biggest slide came on the tablet side, with unit sales declining 39 percent. Inte’s notebook and desktop platforms witnessed until sales slides of 14 percent and 8 percent respectively. However, with all things considered, the average selling prices (ASP) for the entire Client Computing Group actually increased by 15 percent.

Intel’s Data Center Group saw its revenue increase by 12 percent YoY from $3.7 billion to $4.1 billion. But what we all will be watching closely over the next few quarters (and years) is Intel’s burgeoning Internet of Things Group.  The IoT Group brought in “just” $580 million during Q3 2015, but that was up 10 percent from the year before and has the potential to grow even larger as analysts expect an explosion of growth in this sector by the year 2020.

“We executed well in the third quarter and delivered solid results in a challenging economic environment,” said Intel CEO Brian Krzanich. “The quarter demonstrates Intel innovation in action. Customers are excited about our new 6th Gen Intel Core processor, and we introduced our breakthrough 3D XPoint technology, the industry’s first new memory category in more than two decades."

Intel was down nearly 3 percent in after hours trading following its earnings release.