- Intel Q4 2015 earnings beat analyst estimates, but sales and profits were still down from a year ago.
- Markets for PCs, servers, and even cloud chips are saturated.
- Intel is now betting on the internet of things.
For Q4 2015, the chip maker had net income of $3.6 billion or 74 cents per share, on revenue of $14.9 billion. Analysts had been expecting 63 cents per share in earnings. The company generated $5.4 billion in cash flow from operations, and returned $1.625 billion of it to shareholders in the form of dividends and stock repurchases.
For the year (FY 2015) net income came in at $11.4 billion or $2.33 per share, on revenue of $55.4 billion. This means revenue was actually down on a YoY basis, when it was $55.9 billion, and net income was down by $300 million, from $11.7 billion in 2014, but share buybacks meant earnings per share were up marginally, from $2.31 in 2014.
Looking at those numbers overnight, investors decided to sell. Intel stock opened at $29.73 for trading on January 15, after optimism ahead of the Q4 2015 earnings release had sent it to near $33 in trading on Thursday. At that price it carries a Price/Earnings multiple of under 13, despite its ability to cover shareholder payments more than twice over.
The problem is the server business, which is falling as more companies get their needs met by cloud servers in remote data centers, and the PC business, which continues to disappoint despite the delivery of Microsoft (NASDAQ:MSFT) Windows 10 during the quarter, which drew good reviews. Beating estimates isn’t great news if growth is slowing to a crawl.
The numbers were seen as negative for the whole global economy, given the importance of technology, as sales to those cloud data centers were up just 5.3%, much slower than the 11% growth rate for the full year, or the 18% growth achieved in 2014. The numbers were the first to be reported since its acquisition of Altera, and included the numbers from the new subsidiary, which designs FPGA chips which can be pre-programmed to include application software in smart appliances.
Intel is betting heavily on the Internet of Things, the adding of intelligence to machines of all types, and CEO Brian Krzanich emphasized that during the last week by joining the board of Deere & Co. (NYSE:DE), the maker of farm and industrial equipment. Intel is also banking on creating hot new categories of products, as shown during Krzanich’s CES keynote, where he came out riding a hoverboard and showed off drones, computer-equipped clothes and robots.
The whole industry is trying to find a way through a technology market where the market in traditional niches like desktop machines, and even hand-held devices like phones, is saturated, and where money for new toys is tight. The hope is that the productivity gains from things like smart construction helmets and athletic clothes acting as trainers can create vast new markets.
But until these new markets are proven, Intel stock cannot be expected to fly very high.