- Earlier this year, the management at Intel Corp. decided to cancel the company’s mobile projects, SoFIA and Broxton.
- There are reports that Intel is not really giving up on the mobile market, but rather eyeing 5G technology.
- Recent improvements in chip manufacturing technology will allow the company to further expand its products and aid the long term outlook for Intel stock.
In April 2016, Intel (NSDQ:INTC) announced that it had cancelled its SoFIA projects (3Gx, LTE, LTE2) and its Broxton SoC for smartphones and tablets. The move is expected to provide it with the necessary resources to refocus its efforts on “high-return” projects such as 5G.
Based on industry estimates, the company lost almost $10 billion cumulatively on both SoFIA and Broxton projects. Of course, it would be difficult to admit its mistakes considering that the company made several promises that their mobile unit will deliver results. The disappointing results of these major projects have put a dent in the company’s operating profit, which declined from $15 billion to $14 billion during the period.
Also Read: How Intel Is Losing The Plot
Below are net operating results of Intel Corp., which show that the client computing group was the main driver of such results for the Group.
Table 1: Net Operating Results of Key Intel Segments
|Operating Income (loss)||2015||2014||2013|
|Figures in $'MM|
|Client Computing Group||8,165||10,323||8,708|
|Data Center Group||7,844||7,390||5,456|
|Internet of Things Group||515||583||532|
|Software and services op. segments||210||81||57|
|Source: INTC Annual Report|
Additionally, the decision to cancel these projects is part of the plan to restructure the company. In fact, Intel has also announced that it will be cutting 11% of its workforce, and take a $1.2 billion restructuring charge. However, the restructuring efforts will lead to cost savings of $1 billion a year.
Lose the battle, but win the war
It seems that Intel Corp. is not yet ready to throw in the towel as far as the mobile space is concerned. In fact, the giant chipmaker is thinking long-term - 5G technologies. The attraction of the technology is that it would not be limited to mobile devices, but would include cars, drones and robots.
Research firm Gartner believes that 5G will be an integral part of the “Internet of Things” space, and around 6.4 billion connected devices are expected to be in use in 2016. The number of connected devices is expected to reach 20.8 billion by 2020.
As noted above, the “Internet of Things” segment contributes to only around 4% of the total revenues. However, I expect an increased contribution from this segment in the coming years, as Intel continues to evolve its business model with the aim of producing substantial gains for the company.
Further, the recent announcements revealed that the company is developing “derivative technologies” which would enhance its existing technologies. This is compelling evidence that management is not only focused on the future, but that it is also working on improving current products. These moves are definitely value-accretive to shareholders in the longer term and could drive the Intel stock.
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