Anybody following the semiconductor industry probably knows that the market for memory products -- that is, both NAND flash memory (used for high-speed mobile, PC, and data-center storage) and DRAM (used in just about anything that can be called a computer) -- has been positively booming.
Chip companies whose core businesses are memory-based are seeing significant revenue growth and gross profit margin expansion, thanks to high demand for such products and a tight supply environment.
Chipmaker Intel (NASDAQ: INTC) hasn't been a memory company for a long time -- it's first and foremost a maker of logic semiconductors (such as processors and connectivity chips). However, in recent years, Intel made the decision to invest more heavily in non-volatile memory technologies.
Intel isn't entering the DRAM business, but it has doubled down on its NAND flash business (even going so far as to convert one of its older logic factories into a NAND flash factory), and is investing heavily in a new type of non-volatile memory technology called 3D XPoint.
Thanks to these bets, Intel seems to be enjoying (to some degree, at least) this memory boom.
Let's take a closer look at Intel's non-volatile-memory solutions group (NSG) results.
Revenue way up, core NAND profitable
Intel's NSG segment enjoyed revenue of $874 million in the most recent quarter, up nearly 58% from $554 million a year earlier.
The operating loss that Intel incurred here was $110 million -- to be clear, that's still a loss, but it is a dramatic improvement from the $224 million loss that this segment suffered a year ago.
Now, on the surface it might look like Intel can't even turn a profit even as it sells a lot more NAND flash in a favorable pricing environment, but the operating results here don't tell the whole story.
Intel said on this week's earnings call that its "core NAND flash" business turned profitable for the quarter (ahead of the company's original guidance of profitability later in the year).
What drove the loss, per Intel CFO Robert Swan: "the costs associated with 3D XPoint and start-up costs for [Intel's] memory capacity."
Remember that while Intel is spending significantly on research and development related to its 3D XPoint technology, it isn't generating much revenue from those products today. Things should get better on this front, though, as Intel starts seeing significant 3D XPoint revenues roll in.
Indeed, Swan said on the call that the company expects its "memory business as a whole to be profitable in 2018," which he said was better than the company's previous expectations.
A smart bet
Intel's bet on the memory market seems to have been a good one for the long term. The world is moving toward non-volatile memory solutions across a broad range of computing devices in both client and data-center environments, and by investing heavily in technology development and manufacturing capacity, Intel seems to be positioning itself to continue to enjoy this seemingly long-term trend.
Smart move, Intel!
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