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Intel Promises Wall Street its Huge Mobile Losses Will Narrow

But those losses were a necessary price to get back in the game, Chairman Andy Bryant said at an analyst event in Santa Clara, Calif.

Asa Mathat

Intel promises its mobile business won’t continue with the multi-billion dollar losses it has seen in the past year.

But Chairman Andy Bryant said such losses were necessary to get back in the mobile game.

“This is the price you pay for sitting on the sidelines,” he said, kicking off Intel’s investor day in Santa Clara, Calif. “We’re losing a lot of money trying to regain our presence in the mobility space.”

Bryant pointed to recent bright spots, including its improved presence in tablets and the company’s LTE modem being adopted for one of Samsung’s Galaxy phones.

“I’m not embarrassed about it like I was a year ago,” Bryant said.

That said, Intel is still expecting big losses, with CFO Stacy Smith saying it should be able to pair losses next year by about $800 million. However, analysts are projecting about $4 billion in operating losses this year, so that still leaves a pretty big loss next year.

Bryant said Intel is helped by the fact it has been a pretty good year for its other businesses in the PC and data center areas.

CEO Bryan Krzanich noted that the company is on pace to deliver record revenue of more than $55 billion.

“We’re very proud of this year,” he said, before turning attention back to the work the company still has to do.

Update, 9:30 a.m. PT: Intel just issued its financial guidance for 2015, saying it expects revenue growth “in the mid-single digits” with its gross profit margins to be around 62 percent (plus or minus two percentage points)–a slight drop from 2014.

It also said to expect capital spending to be around $10.5 billion–down slightly from 2014. It also said it expects to pay a 96-cent-per-share annual cash dividend, a 6 cent per share increase.

9:55 a.m.: Having given financial guidance already, CFO Stacy Smith began his presentation with a haiku.

Cloud forms, data shines
Transistor density sprouts
Client growth blossoms.

He’s also promised a second haiku later in his talk.

Shifting back to prose, Smith also noted that Intel’s core business–the PC market–is on track for 9 percent growth this year. Smith also noted that unlike historically, PC prices are remaining relatively flat as opposed to the typical year-over-year declines.

10:20 a.m.: While Krzanich didn’t give a tablet market forecast for 2015 during his presentation, I caught up with him during the break and asked him if he thought Intel could still ship 70 million tablet chips next year, a goal he thought in June might be achievable.

“I don’t think our standalone number will be that high,” he said in a brief interview. Krzanich said something near that total might still be possible if you also include in Intel architecture chips shipped by China’s Rockchip, depending on how quickly that partnership takes off.

In fairness, forecasts for the tablet market have cooled in recent months amid signs demand is waning in mature markets.

10:25 a.m.: Smith also addressed the tablet market, saying that he expected the mobile chip business to have positive profit margins some by some time in the first half of 2016.

“We’re not yet where we need to be but we are making positive (strides),” he said.

A new chip, known as SoFIA will help things as it is designed to be cheaper on its own and also not to require the higher level tablet designs that forced Intel to write checks to device makers that use its processors. (Intel will still be making some payments next year as tablets continue to come out using the company’s Bay Trail and Clover Trail processors.)

On the PC side, Smith said Intel expects PC units to be roughly flat and revenue slightly down next year.

In its “Internet of things” business, which includes Intel’s embedded chips, Smith said 2015 revenue should be up 18 percent to around $2.1 billion with $600 million in operating profits.

10:42 a.m.: Lots of charts, discussion of CapEx, depreciation, etc. Still waiting for that second haiku.

Intel did have a fun “napkin math” slide. The slide itself just shows impact of depreciation assuming revenue stays flat, blah blah blah. But napkins!

10:55 a.m.: Pressed for more details on the mobile losses, Smith said that the company expects around $800 million worth of operating margin improvement next year, though it will still be losing money. Also, while it does expect to turn gross margin positive sometime in the first half of 2016, it doesn’t expect the unit overall to reach the break-even point for 2016.

“I think that happens further out,” Smith said.

11:10 a.m.: Here’s Stacy Smith’s second haiku by the way.

Big Drones, cool robots
Intelligence on the edge
BK spawns Skynet

Meanwhile, asked about tablets, Krzanich said for 2015 to expect the company to grow roughly in line with the overall market and to focus on narrowing losses rather than grabbing a bigger slice of the market.

“There’s not a need to gain share or grow footprint,” Krzanich said.

12:07 p.m.: Data Center head Diane Bryant went deep into the server weeds, though there were some lighter moments, including when the Big Data team analyzed her Basis Band data to tell her she should exercise more and go to bed earlier. Bryant noted she hoped the team was capable of better insights than that.

In the show and tell section, Bryant held up traditional server cables and those using Intel’s silicon photonics. Input/output costs are a big deal in the data center world. I just thought the cables were pretty.

12:15 p.m.: Next up, Client computing unit boss Kirk Skaugen is talking up PC business, especially the variety of operating systems (Chrome OS, Android in addition to Windows and Macs) as well as all the different shapes and sizes.

Skaugen said PC buyers of 2-in-1 portables (tablets with attachable keyboards) replace their devices on average a year earlier than traditional laptop buyers. One has to wonder though if that means that those customers are more or less satisfied with what they bought, though.

In any case, Skaugen said that 2-in-1 PCs are starting to claw back share from tablets.

12:20 p.m.: In the Chrome OS market, Intel now has about two-thirds of the Chromebook market, up from less than a quarter. That comes as Chrome OS device shipments are expected to triple by 2017, according to Gartner, Skaugen said.

12:38 p.m.: Skaugen now promising Intel will eliminate passwords and all wires from PCs. Sounds great, but will believe it when I see it.

12:40 p.m.: And now we see it.

Demo shows a PC wirelessly connecting to monitor over WiGig and battery charging using resonance-based wireless charging.

“In 2015 we may never need to plug in again,” demo guy promises. Color me hopeful, but skeptical.

12:45 p.m.: Some fun demos too, including a real-time avatar using facial scanning as well as the ability to use a tablet to do measurements of a package thanks to depth-sensing camera.

That said, stomachs are grumbling and we haven’t even gotten to Q and A yet.

12:50 p.m.: Q and A. Analysts are hungry. For more profits.

2:06 p.m. Back at it. All are fed and happy (or at least fed.)

Intel president Renee James is up next, making the case for why Intel needs its mobile communications technology for more than just phones and tablets. It will become a necessity even in the core PC business, she says, likening it to when Intel went after the PC graphics market.

The company struggled there too, but has reaped the benefits by being able to integrate graphics into its core chips,she said.

“It is a strategic asset,” James said. “If you have it, you are a ‘have’ versus a ‘have not’ in the industry going forward.”

The daylong event is still taking place. Check back for frequent updates.

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