Intel Reports 7% Decline in PC Supply Shipments, Predicts Flat 2017 After Record 2016

The most important personal computer supplier in the world is out with their full year results and the news isn't great, but it could be worse.

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Intel Corporation's 4th quarter earnings release is out. Intel reported non-GAAP record full-year revenue of $59.5 billion up 7.2% year over year, operating income of $16.5 billion, net income of $13.2 billion, and EPS of $2.72. The company generated approximately $21.8 billion in cash from operations, paid dividends of $4.9 billion and used $2.6 billion to repurchase 81 million shares of stock.

Full-Year 2016 Business Unit Trends*

• Client Computing Group revenue of $32.9 billion, up 2% from 2015
• Data Center Group revenue of $17.2 billion, up 8% from 2015
• Internet of Things Group revenue of $2.6 billion, up 15% from 2015
• Non-Volatile Memory Solution Group revenue of $2.6 billion, down 1% from 2015
• Intel Security Group revenue of $2.2 billion, up 9% from 2015
• Programmable Solutions Group revenue of $1.7 billion

* The first quarter of 2016 had 14 weeks of business versus the typical 13 weeks, as the company realigned its fiscal year with the calendar year.

For the fourth quarter, Intel posted record revenue of $16.4 billion up 10% from Q4 2015, non-GAAP operating income of $4.9 billion, net income of $3.9 billion, and EPS of 79 cents. The company generated approximately $8.2 billion in cash from operations, paid dividends of $1.2 billion, and used $533 million to repurchase 15 million shares of stock.

Q4 Business Unit Trends

• Client Computing Group revenue of $9.1 billion, up 4% year-over-year
• Data Center Group revenue of $4.7 billion, up 8% year-over-year
• Internet of Things Group revenue of $726 million, up 16% year-over-year
• Non-Volatile Memory Solution Group revenue of $816 million, up 25% year-over-year
• Intel Security Group revenue of $550 million, up 7% year-over-year
• Programmable Solutions Group revenue $420 million

Buried within the supplemental information of Intel's earnings report is some evidence of continued weakness in personal computer shipments. Intel and other PC suppliers have been facing a tough consumer environment for a few years and this fourth quarter provided no evidence of a return to growth in unit shipments. Client Computing Group Platform revenues were up 4% year over year in Q4. This occurred despite unit volumes being down 7% in that same time period, buoyed by a 7% increase in average selling prices compared to Q4 2015.

Weakness in PC component sales, which comprise over 50% of Intel's sales, continue to overshadow the company's new efforts to diversify into faster-growing spaces. Intel has stopped reporting percentage declines in their struggling tablet platform as of last quarter.

Client Computing Group Notebook, Desktop and Tablet Platform Key Drivers

2016 compared to 2015:

- Notebook platform volumes decreased 1%
- Notebook platform average selling prices increased 2%
- Desktop platform volumes decreased 6%
- Desktop platform average selling prices increased 2%

Q4 2016 compared to Q4 2015:

- Notebook platform volumes were flat
- Notebook platform average selling prices increased 3% - Desktop platform volumes decreased 9%
- Desktop platform average selling prices increased 2%
- Tablet platform volumes decreased 

Intel still faces a tough road ahead as they push towards cloud and mobile initiatives while continuing to be a market leader in the struggling personal computer industry. Intel acquired Altera in 2016, and those synergies should start to show up in the company's 2017 results. Shares of the company are down slightly in after-hours trading after a slight run up prior to the earnings release.

Asif Khan is the CEO and majority shareholder of Shacknews. He began his career in video game journalism as a freelancer in 2001 for Tendobox.com. Asif is a CPA and was formerly an investment adviser representative. After much success in his own personal investments, he retired from his day job in financial services and is currently focused on new private investments. His favorite PC game of all time is Duke Nukem 3D, and he is an unapologetic fan of most things Nintendo. Asif first frequented the Shack when it was sCary's Shugashack to find all things Quake. When he is not immersed in investments or gaming he is a purveyor of fine electronic music. Asif also has an irrational love of Cleveland sports.

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