Datacenter revenues drive Intel growth

With Intel’s release of their second quarter revenue numbers it’s clear that without significant growth in datacenter related earnings, their overall performance would have been rather flat, despite total revenue of approximately $14billion.

While the PC Client Group had the largest single revenue number of $8.7 billion, growth was only 3%, while the $2.8 billion in Data Center Group revenue represented a 14% increase. Other Intel architecture group revenue also reported a minimal 3% growth.  Intel is expecting overall third quarter results to be down,  but given the mid-second quarter release of the latest generation of Xeon processors, I would be unsurprised to see continued growth in the datacenter revenue portion of their overall numbers.

Paul Otellini, President and CEO of Intel, explains the predicted slowdown in Q3. "As we enter the third quarter, our growth will be slower than we anticipated due to a more challenging macroeconomic environment. With a rich mix of Ultrabook and Intel-based tablet and phone introductions in the second half, combined with the long-term investments we're making in our product and manufacturing areas, we are well positioned for this year and beyond."

Unsurprisingly, it appears Intel is placing a big bet on the Ultrabook market, but the area of greatest potential long-term growth and revenue is clearly mobile.  Intel’s penetration in that market, despite having a broad product line, is virtually nil, with the first phone introduced last April, so any growth there would show as an improvement. Since the product line exists, it will be interesting if a potential Intel investment in Windows Phone 8 , which may hit in late Q3, is part of the reason for their lowered financial expectations.

I expect Intel to show steady growth in the datacenter market, and if Ultrabooks become widely successful, better revenue growth in the PC space.  But the key for long term growth will be significant penetration in the mobile space, and Intel has yet to demonstrate that they can effectively compete there.