In recent years, chip giant Intel (NASDAQ: INTC) has taken significant steps to diversify away from the personal computer processor market. This isn't because such processors aren't highly lucrative for the company -- they are.
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But the reality is that demand for personal computers, and therefore the processors that Intel builds and sells into that market, has been flat-to-down for years and there's little reason to be optimistic about the personal computer market becoming a reliable growth business.
Nevertheless, personal computer processors and related components still make up more than half of Intel's annual sales and account for a large portion of the company's profits and chip manufacturing scale.
It's important, then, for current and potential investors in Intel stock to have a good understanding of the basics of the company's Client Computing Group, commonly abbreviated CCG, which primarily consists of the company's PC processor and related component sales.
Intel CCG revenue and profit
In 2016, Intel's CCG generated $32.9 billion in revenue and $10.65 billion in operating income. This means that CCG accounted for about 55.4% of the company's revenue that year and generated the most raw operating profit of any of Intel's business units by a significant margin.
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Although 2017 hasn't wound to a close yet, the business is on track for an even better 2017 on both fronts: CCG revenue over the first three quarters of 2017 came in at $25.05 billion, up 5.3% from CCG revenue during the first three quarters of 2016. CCG operating income during the first three quarters of the year was up 35.6% over the previous-year period.
The revenue growth came from growth in both CCG's platform revenue (platforms refer to Intel processors and, when applicable, Platform Controller Hub (PCH) chips that those processors require to function) as well as in its "other" technologies, which includes complementary technologies like cellular modems, Wi-Fi chips, and so on.
Most notably, Intel's strong CCG platform revenue results so far in 2017 come despite the fact that the overall personal computer market continues to see unit shipment declines. Intel reported in October that CCG platform unit shipments were down 3% year-to-date, but that has been offset by a 7% increase in platform average selling prices in that same time.
Intel CCG strategy and prospects
Intel management has made it clear that its goal is to maximize the profitability of CCG since it doesn't see a lot of growth prospects for the overall personal computer market.
Nevertheless, the company does seem to have plans in place to try to boost both profitability and, if things go right, revenue.
For example, Intel is being more aggressive in segmenting its product brands. Such segmentation is designed to encourage PC buyers to buy more expensive computers with higher-priced processors, but if that fails, Intel seems to be getting better about having cost-optimized processors and technologies that help maximize its margins on lower-priced processors.
On top of that, Intel has done a lot of work to try to capture more of the bill of materials in a typical personal computer -- that is, the list of components that go into such a device. Intel has made moves to try to capture share in areas like connectivity technology and flash memory-based storage devices.
And, finally, Intel's CCG also supplies stand-alone cellular modems primarily into the iPhone. Intel is believed to have a minority share of Apple's currently available iPhones, but one credible report suggests that Intel is on track to capture between 70% and 80% of the modem spots in the iPhones that will be introduced in 2018.
CCG doesn't participate in markets that are booming, but the company does seem to have a good strategy to try to profit as nicely from it as possible.
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Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.