Discretion is the better part of valour. And Intel has been valorous — for some years now — in its fight for a toehold in the mobile market. Losses in mobile (chips for tablets and phones) rose to $4.2bn last year. Discretion time?
Intel was late to the mobile market, which is dominated by chips based on designs from rival Arm Holdings. It has been investing heavily in the hope of catching up. Part of the reason for the operating losses is that Intel pays device makers to use its chips (Intel calls this “contra-revenue”). In the fourth quarter last year, revenue for the mobile segment turned negative for the first time, reaching –$6m. This is the price of gaining market share: the company shipped 45m tablet processors last year, second only to Apple.
Intel is pinning its hopes on the Sofia chip, a processor that combines an application processor and a 3G radio chip. It started shipping last year, and details are expected to be unveiled at the Mobile World Congress, which starts on Sunday. Sofia is designed for cheap smartphones.
With Samsung and Apple dominating the market — and forgoing Intel’s chips — Intel’s progress in phones will be slow. Intel can afford to keep trying. Even with the drag from mobile, free cash flow was $10bn last year. Intel spent $4.4bn on dividends; $10bn on buybacks, but that number can — and should — come down. Intel’s data centre business has 95 per cent of the market and is growing fast; sales in its Internet of Things business grew 19 per cent to pass $2bn last year. PC component sales, which represent more than half of Intel’s revenue, are also doing well. With organic growth and cash on hand, it’s better to invest cash in new areas than to hoard it to use it to buy back shares. Intel could boost earnings in the short term by disposing of its mobile division. But that would mean missing out on mobile growth in the long term. Discretion will have to wait.
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