What Does Intel Hope to Achieve through Restructuring?
Intel's Fiscal 1Q16 Earnings: You Be the Judge
Intel’s aim for restructuring
Intel (INTC) plans to dissolve its slow-growth businesses and use the cash saved to expand its high-growth businesses of data center, IoT (Internet of things), and memory. The company is also planning to create new positions that will head technologies of some or all business segments. For this reason, the company has appointed Chief Financial Officer Stacy Smith to run its sales, manufacturing, and operations. Intel has also appointed former Qualcomm (QCOM) executive Murthy Renduchintala as President of Client and IoT. But what does the company plan to do with these changes?
Revamping business structure
By having a single person to head the operations, manufacturing, and sales, the company aims to integrate the technology of its different business segments effectively to better serve a few very large cloud customers, such as Amazon (AMZN) and Microsoft (MSFT).
The company is looking to integrate Altera’s FPGA (field-programmable gate array) technology into its data center processors and 3D memory chips. By bringing all these technologies under a single person, the company should see a smooth transition.
With the appointment of Murthy Renduchintala, Intel aims to create a comprehensive IoT platform that caters to all the needs of a connected world, from connected devices to cloud computing, to data security. Intel’s IoTG group reported a 22% YoY (year-over-year) revenue growth in fiscal 1Q16. The group is now moving toward the 5% revenue share, after being stuck at around 4% for the past two years.
End of Moore’s law is the birth of innovative offerings
Intel is looking to integrate different technologies in its processors to match different needs of different consumers. The move comes as the Moore’s law slows. According to the Moore’s law, chip size will shrink every two years and bring cost and power efficiency.
However, the arrival time of the next generation of chips has extended from two to two and a half years, giving competitors an opportunity to bring the next-generation chips at the same time as Intel. This would remove the company’s first-mover advantage and force it to compete in terms of pricing.
Notably, the PowerShares QQQ ETF (QQQ) invests in technology stocks, including ~8.4% in MSFT, ~5.5% in AMZN, ~2.8% in INTC, and ~1.5% in QCOM.
In the next part, we’ll look at the performance of Intel’s computing business.
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