Microprocessor giant Intel (NASDAQ: INTC) reported strong results after market close on July 27. Excluding the company's Intel Security results (since the company divested of this business), the company says that its revenue was up 14% year over year in the most recent quarter.
Earnings per share, on a GAAP (generally accepted accounting principles) basis, were $0.58; the company says they were "up 22 percent year-over-year driven by strong topline growth and gross margin improvement."
The company had some more good news to share with investors: It is raising its full-year revenue guidance to $61.3 billion (up from $60 billion previously) and its GAAP earnings-per-share guidance by $0.10, to $2.66.
There's no other way to put it: Intel did extremely well this quarter, and 2017 is shaping up to be quite a good year for the company.
Let's take a closer look at the details driving these results.
Solid client-computing results
Intel's client computing group performed surprisingly well this quarter, with revenue growing from $7.34 billion a year ago to $8.21 billion in the most recent quarter; that works out to 12% growth.
Intel attributes that year-over-year revenue growth to two factors. The first is "higher notebook ASP [average selling prices] and volume," and the second is a ramp-up in the company's shipments of LTE chips (presumably in support of the next iPhone).
Operating profit in this segment surged, growing from just $1.91 billion in the prior-year period to $3.03 billion in the most recent quarter (up 58% year over year). This segment is now, by far, Intel's largest in terms of both revenue and raw operating-profit contribution.
The company says that the operating profit growth was due to "improving 14nm costs" (manufacturing yield improvements), a "richer product mix" (selling more of its higher-end parts), and "lower spending" (cuts in operating expenses).
Decent data-center group results
Intel's data center group (DCG) seems to be the focus among investors and analysts these days, since it is large, highly profitable, and widely viewed as the company's primary long-term growth engine. It seems to have done well this quarter, too.
Revenue in this segment was up 9% year over year, broken into platform revenue up 8% year over year and non-platform revenue (in other words, non-CPU/chipset technologies) up 12% year over year.
Unit volumes in this segment were up 7%, while average selling prices were up just 1%.
Intel says that its cloud and [communications] service provider segments "combined to make up nearly 60% of total DCG revenue." This is important because Intel wants to diversify DCG from the traditional enterprise-server business, which has been lucrative for the company, but is now on the decline.
To illustrate just why Intel wants such diversification, the company says that its revenue growth in the cloud service provider segment was 35% year over year and its communications service provider revenue was up 17% year over year.
Intel's "enterprise and government" business, on the other hand, plunged 11% year over year.
In terms of profitability, Intel saw operating profit in DCG drop from $1.77 billion in the year-ago quarter to $1.66 billion in the most recent quarter. The company attributed this to "higher unit costs" due to the transition to 14nm, along with "technology development costs and investments in AI, Adjacencies."
Investors may recall that Intel recently shifted its product development methodology to build data-center products first on new manufacturing technologies, so DCG bears a larger portion of the total manufacturing-technology development costs now than it did a year ago.
Intel reported strong growth in its Internet of Things (IoT) business, with revenue growth year over year of 26%, and operating profit surging 56%. The company attributed the results to "strength in Industrial, Video and Automotive."
In its non-volatile memory solutions group (NSG), it enjoyed revenue growth of 58% and a 51% operating profit improvement. This segment lost $110 million this quarter, but the company says that its core NAND flash business was profitable in the quarter, meaning that the losses here are related to the company's nascent 3D XPoint memory business.
And, finally, Intel's programmable solutions group (PSG), the new name for the Altera business that Intel acquired in late 2015, saw revenue decline 5% "driven by data center and wireless which more than offset growth in Industrial, Military and Embedded." Operating profit here was down a modest 2%.
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