Intel is one of the leading producers of microprocessors in the
world. The company's first-quarter earnings exceeded the Zacks
Consensus Estimate by a penny. Forward guidance was in line with
the consensus estimate. Though Intel's promise of success in the
mobile segment is encouraging, this is likely to be mitigated by
conservative spending by individuals and corporations, competition
from ARM-based devices, and the impact of new product ramp-up
costs. The silver lining is its strength in the server and software
segments, which along with the stabilization in the PC market and
its process lead leads us to upgrade our rating to Outperform.
Intel Corporation (INTC), based in Santa Clara, California, is
the world's largest manufacturer of semiconductor products. The
company supplies the computing and communications industries with
microprocessors, motherboards, and system building blocks that are
integral to computers, servers, and networking and communications
products. Intel generated $52.7 billion in revenue in 2013, down
1.2% from 2012.
Microprocessors are the central processing units within a
computing system. The speed and performance of microprocessors are
dependent on a number of features that may be incorporated within
it. The basic functions of the processor include the processing and
storage of information and its retrieval at the desired time. Thus
there are several operating steps within the processor that take
place all the time, while the processor is in use recording or
storage of raw data, retrieval of this data for processing, storing
the processed data at another location and retrieving this
processed data when required. The efficiency of these operations
comes from the basic architecture, or the number of bits of
information that it is able to process simultaneously. Design
architectures are usually referred to as 64-bit, 32-bit and so on.
Most of Intel's products are in the 64-bit category, or are 32-bit
devices with 64-bit address extensions. This makes them suitable
for both 32-bit and 64-bit software applications. Another factor
that enhances processor speed is the clock speed, or the speed at
which the internal logic of the unit processes the information.
Frequently used data is stored in a specific place within the
processor that is referred to as cache memory. Some of the
company's processors already incorporate second and third levels of
cache, enabling faster and more efficient operation.
With each successive year, Intel and competitor AMD have
increased the number of cores within each microprocessor, from dual
core right up to 12 cores per processor. The two companies are now
working on 16-core processors. The increasing number of cores
facilitates multitasking and makes energy consumption more
efficient. The transfer of information into and out of the
processor to and from the chipset is carried out by buses.
Therefore, bus speeds also impact the efficiency of the unit. The
final link in the process is the storage capacity of the unit that
is defined by the number of gigabytes of available memory capacity
to support efficient operation over a period of time.
The microprocessor is placed on a board (the motherboard) that
also houses other devices, such as the chipset, memory and all
related circuitry. The company's motherboards are designed for
desktop, server and workstation platforms, although OEM customers
have the option of using a motherboard from any other company as
well. Intel also makes chipsets that support its processors and may
be used on its motherboards. A chipset is a set of chips
manufactured, sold and used as a unit for the purpose of carrying
out a particular function. The chipset carries information between
the CPU, display, storage and I/O devices. It is therefore
responsible for regulating the amount and nature of information
flowing through system buses, ensuring that the processes are
carried out smoothly and that there are no bottlenecks.
Depending on the end markets served, microprocessors,
motherboards and chipsets are categorized into the PC Client and
Data Center Groups. The PC Client Group is targeted at notebooks,
netbooks and desktop computers. Some wireless connectivity products
are also included in this segment. This segment generated 63% of
revenue in 2013, down 4.2% from 2012. The Data Center Group is
targeted at servers, workstations and other products for data
center and cloud computing environments. Additionally, wired
connectivity products are included in the segment. This segment
generated 21% of 2013 revenue, up 6.9% from 2012.
The Other Intel Architecture segment includes the Embedded and
Communications Group (microprocessors for industrial, medical and
automotive infotainment markets) the Ultra-Mobility Group (power
efficient Atom processors and chipsets for MIDs and handsets) and
the Digital Home Group (targeting various consumer electronics
gadgets primarily used at home). The segment made up 8% of 2013
revenue, down 6.5% from 2012. Software and Services is now a
separate segment following the acquisition of McAfee. The segment,
which also includes Wind River accounted for less than 5% (up
5.1%). All Other products, including the NAND flash memory products
brought in the remaining 3% of 2013 revenue, grew 17.2% from
Most of Intel's 2013 revenue came from Asian countries.
Specifically, Singapore accounted for 21% (down 12.9% from 2012),
China 19% (up 19.2%), Taiwan 17% (down 4.7%), and Japan 7% (down
13.4%). The U.S. and Other countries generated 17% and 19% of 2013
revenue, respectively, with the U.S. growing 8.9% and other regions
Intel's major customers include original design manufacturers
(ODMs), original equipment manufacturers (OEMs) such as Hewlett
Packard Company and Dell Computer, which make computers, cell
phones and other types of equipment individuals and business
customers, who buy Intel's chips and printed circuit board-level
products from distributors and other resellers and manufacturers of
various types of industrial and communications equipment. In 2013,
the three largest customers were Hewlett Packard, Dell and Lenovo,
which accounted for 17%, 15% and 12% of total revenue,
The company's most significant competitor in the x86 segment is
AMD, which has offerings in almost every market that Intel serves.
Other competitors include VIA, NVIDIA, Freescale Semiconductor,
Qualcomm and Texas Instruments, some of whom sell chips based on
rival chip architecture from ARM Holdings.
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