I got your $13.9 Billion over here…

Intel beat estimates again with a very strong quarter.

Intel had a record quarter.  Are we tired of hearing that yet?  I guess that depends on who a person is investing with.  Earlier this quarter Intel warned that their results could be negatively affected by the current hard drive shortage that we are experiencing.  Apparently, this was a factor, but it did not stop Intel from still having a record quarter.

Q4 2011 turned out to be gangbusters for Intel.  They reported gross revenue of $13.9 billion, which is significantly higher than the expected $13.74 billion analysts were predicting.  Net income came in at $3.4 billion with an impressive 65.5% gross margin.  The overall year was also record setting at $54 billion gross revenue and $12.9 billion net income.  For comparison, AMD has a gross revenue of about $6.8 billion and a net income of around $300 million.  2010 was a record year for Intel in that they surpassed $40 billion in revenue for the first time in the company’s history, and this year saw revenue over $10 billion higher.  Intel is certainly hitting their stride, and they do not look to slow down anytime soon.

The strongest performer in the Intel portfolio of products was that of Sandy Bridge for both desktops and notebooks.  Sandy Bridge accounted for about 40% of overall revenue for the company.  Other areas of the company saw huge strides, such as the storage division increasing in revenue by 42% this year over last.  Datacenter products made up to $10 billion of revenue, and that looks to grow due to the explosion of “the cloud” style computing with home, business, and mobile products.  ASPs overall continued to rise throughout the year for Intel due to the combination of highly competitive parts, mature 32 nm manufacturing techniques, and a distinct lack of competition from AMD in the desktop, notebook, and server markets.

Intel completed many milestones this year.  They successfully ramped 22 nm production and we expect to see the first products being released in the March timeframe (Ivy Bridge).  They completed the acquisition of McAfee, which contributed around $1 billion to the bottom line.  Infineon Wireless became Intel Mobile Communications.  Intel laid the foundations of their 14 nm process technology which should be available for production in about two and a half years.  Sandy Bridge E based Xeons, codenamed Romley, are shipping to manufacturers and will be introduced later this quarter.  Apparently demand for these processors is outstripping that of the previous Nehalem launch on the server side.  Intel introduced their Knight’s Corner products offering over 1 TFlop of performance.

Areas of huge growth include India, Indonesia, and China.  China has the greatest chance of continued growth as PC penetration is still low.  China also boasts the largest mobile phone base in the world, and Intel is hoping to capitalize on that by introducing their Medfield based mobile SOCs into that market first.  Lenovo will release the K800 phone based on Medfield (32 nm Atom) shortly, and it is expected to be one of the fastest growing smartphones in that region.  In the North American market Intel has signed Motorola up to utilize the Medfield products and have a multi-year deal in place.  Production of these phones is expected to start in Q2 with final validation and distribution in Q3.

Margins will take a small hit going into Q1 due to the ramp of 22 nm products.  Initial wafer starts are more expensive than what we see with 32 nm, but over time that cost will go down as overall yields and bins go up.  Ivy Bridge features the same overall CPU architecture as Sandy Bridge, but with some tweaks.  Most performance and power improvements will come from the use of the 22 nm process with the tri-gate technology.  Ivy Bridge will also feature improved graphics performance, with Intel claiming that it will be in the 70% range for most applications.  Ivy Bridge is also supposed to be the first DX11 compliant part from Intel.  Fab utilization is at a high rate, though some of that comes from Intel closing down certain older lines to make room for 22 nm production, as well as the groundwork needed for 14 nm.

Intel is really pushing the “Ultrabook” concept, and the introduction of Ivy Bridge mobile parts will provide more impetus as these chips will perform better and pull less power than current Sandy Bridge mobile parts.  While this will be an area of growth, there is still a lot of grumbling from partners and others around the mobile market that Intel is artificially inflating the significance of these products and what their impact will be.  Not to be outdone, AMD is talking about their upcoming 17 watt TDP “Trinity” mobile processors which promise competitive CPU performance but significantly higher graphics performance all at power levels comparable to what Intel will produce.  These chips are also aimed at “Ultrabook-style” products, but of course without the Ultrabook branding.

Intel expects Q1 2012 to be strong again, but still down from Q4.  Estimates have gross revenue at $12.9 billion, plus or minus $500 million.  Intel does expect the continued shortage of hard drives to limit sales to a certain extent, but as we have seen from last quarter’s revenue, it will certainly not be crippling for the company.  This would be a very strong result for Intel and a good indicator of where it will be throughout the year.  While ARM will continue to give Intel fits in the tablet and mobile market, AMD so far has not provided much competition in the server, desktop, and notebook areas.  One area that AMD and ARM are very competitive with Intel is that of netbooks.  Intel has seen a significant loss of share in that market, and Atom sales have suffered.  Intel is working to push Atom down into mobile apps, and replace the netbook market with Ultrabooks based on the Core architecture.

Intel has few weaknesses going into this coming year.  Their process technology is world leading, and it does not look like the competition will catch up anytime soon.  In fact, it looks like the process divide is actually increasing.  This can only be a positive for Intel and a big hurdle for their competitors in all spaces.  Companies like Qualcomm and NVIDIA are breathing a sigh of relief that Intel is not pursuing an ARM license and applying that tech to their 22 nm tri-gate process.  That combination would simply be unbeatable in terms of performance and power consumption as the current ARM market is only now moving to 28 nm.  Intel still has a lot of catching up to do when it comes to graphics in all sectors, but they have made strides and in the case of Medfield are not afraid to license other IP.