What just trousered a $4.5bn profit, has glum desktop chip sales, and rhymes with go to hell?

Hey, there's always money in the cellular modems, huh?

Intel reported better than expected results for the third quarter of the year, beating analysts' predictions.

It was a win for Big Blue’s data center, Internet of Things and flash memory business sectors, which achieved fat quarterly sales. But revenue from PCs aka “client computing” didn't grow from last year, suggesting either the personal computer market is still stalled for Intel or tiny rival AMD is having a noticeable effect.

On Thursday, Bob Swan, Intel’s chief financial officer, said: “In the third quarter, we delivered record earnings, exceeded our [earnings per share] expectations, and increased our profit expectations for the full year.”

Here are the figures for the third quarter – the three months to September 30 – in summary:

  • Revenues of $16.15bn, up two per cent from from the year-ago period, and beating analyst expectations by $420m. This total number is broken down into client computing, which contributed to $8.9bn, a flat rate of change. IoT revenue was $849m, an increase of 23 per cent. Flash memory sales were $891m, up 37 per cent, and the FPGAs or programmable solutions group was $469m, up ten per cent. Data center grew seven per cent to $4.9bn.
  • Laptop processor volumes and selling prices were flat. Desktop volumes were down six per cent, year on year, and selling prices flat. Client cloud group's prices shot up seven per cent, offset by a seven per cent fall in volumes. Data center volumes were up four per cent, with prices hanging around two per cent up.
  • Net income was $4.5bn, an increase of 34 per cent from last year’s third quarter. Operating income was $5.1bn, an upwards climb of 15 per cent.
  • Earnings per share (non-GAAP) were $1.01, beating analyst estimates by $0.21, and 36 per cent higher year-over-year.

The chip factory – which, by the way, is fabbing the Google-designed Visual Core image-processing system-on-chip in the Pixel 2 phone – is expecting to rake in $16.3bn for the next quarter, which is about what analysts expect, hit a 63 per cent gross margin, bank a $4.8bn operating income, taking the full year estimate for revenue to $62bn, $700m higher than analysts expected, and to $17.3bn in operating income. Intel’s shares are $42.25a apiece, up about two per cent at the time of writing.

So, things are looking steady for Intel, on paper at least. Having got bored with wearable tech, Intel is now battling hard to take on Nvidia in the AI and high-performance computing worlds. The Xeon Phi family is not going according to plan, it seems, as the tricky-to-program processors have virtually disappeared off the radar, all while Chipzilla throws Movidius, Mobileye, and Nervana silicon at artificial intelligence tasks.

Intel is having a hard time getting 10nm x86 CPUs out the door. CEO Brian Krzanich told analysts on a conference call on Thursday that the silicon will arrive eventually:

We're on track to ship our first low-volume 10-nanometer parts by the end of the year. That will be followed by an initial ramp in the first half of 2018, with both high volume and system availability in the second half of 2018.

He added that Intel's cellular modem biz, which makes communications chips for smartphones that rival Qualcomm's, is doing nicely:

We shipped our first modem into the auto industry, and our modem revenue was up 37 per cent in total over last year ... I'm excited about the modem business. We I think really have gotten a team together that is world-class. We believe we now are on a yearly cadence of world-class modems, which is really critical. That's a big hurdle to get that technology to where you can reliably put out on a yearly cadence of a world-class modem. We believe we're there now. We continue to increase the profitability or the efficiency of that organization, which we've always talked about in the past, and that's continued. So we think we can continue to both drive the technology and continue to grow that business.

And on the subject of AI, claimed Intel's chips are good at inference – seemingly suggesting Nvidia's technology was good for training...

We lead in inference, which is the actual application of artificial intelligence, and we're continuing to really grow in that space.

I think AI, if you take a look at it in general, machine learning, it's the smallest segment... but the fastest growing. So you're going to see it continue to become a bigger and bigger portion of our business. You're seeing the effects in our numbers already around Xeon, Xeon Scalable, the FPGAs ... So those products you're going to see, I'll call those more of our traditional products. And also at the lower end, outside the data center, things like Movidius and now Mobileye.

The other products like Nervana you'll start to see really more towards the back end probably of 2018 from a P&L perspective. If you take a look at Nervana, it actually – we get our first silicon out. It will be handed out as test silicon. We have a yearly cadence of products, and so I expect the first substantiations to be more people figuring out how to use it. It won't be a big impact. But as we go through next year and move on beyond that and get the second generation and beyond, that will grow, we believe, quite considerably.

"Intel had a blowout Q3, which shows how well the company is managing investing in the future while optimizing their current product lines," said analyst Patrick Moorhead of Moor Insights and Strategy.

"Almost every single business unit was up, with flash leading the charge with 37 per cent growth. At the other end, the company saw flat PCs. IoT is up a record 23 per cent. Intel's new 'data-centric' businesses were up 15 per cent. It appears AMD's Ryzen consumer desktop effect is kicking in, as Intel's desktop volumes were down six per cent." ®

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