Intel earnings show revenue gains in notebooks, Internet of Things

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Intel said Tuesday that it had sold more than 100 million microprocessors for the quarter as it notched record revenues of more than $14.6 billion, evidence that its growing work in the embedded space is beginning to take off.

Intel reported net income of $3.3 billion, up 19 percent from a year ago, on revenue of $14.6 billion. Revenue increased 8 percent from a year ago.

“We are pleased by the progress the company is making,” said Intel CEO Brian Krzanich, in a statement. “We achieved our best-ever revenue and strong profits in the third quarter. There is more to do, but our results give us confidence that we’re successfully executing to our strategy of extending our products across a broad range of exciting new markets.”

Perhaps the most important thing Intel divulged was that it believed the health of the PC industry was strong. Intel executives including chief executive Brian Krzanich took pains to note that the fourth quarter would be "seasonal," which usually indicates the strongest sales of the year.

“The worldwide PC supply chain appears to be healthy, with inventory levels appropriate in anticipation of the fourth quarter retail cycles,” Intel said in a commentary document attributed to its chief financial officer, Stacy Smith. Smith added that businesses replacing PCs powered by Windows XP would also help drive sales, but not nearly as much as during the first half of the year.

Intel’s revenues were driven by its PC Client Group, the microprocessor division that supplies its PC microprocessors. There, revenue increased by 9 percent year over year to $9.2 billion. Intel’s data center business also reported a revenue increase of 16 percent to $3.2 billion.

Within the PC space, desktop revenue was up 6 percent, while the average price climbed by 2 percent. The notebook space, however, is where the fight is most heated. There, Intel grew its notebook business a whopping 21 percent—bad news for rival AMD—though prices fell by 10 percent. Intel is also on track to ship enough processors to power between 40 million and 45 million tablets during 2014, enough to make it the largest merchant supplier of tablet processors, Smith said.

To address the price drops, in the fourth quarter Intel will ship a cost-reduced "Bay Trail" Atom chip, also known as Bay Trail CR, executives said.

Intel’s Internet of Things business, as evidenced by its Edison embedded chips, is also beginning to take off. As a percentage of Intel’s business, it’s rather small—just $530 million. But with 16-percent revenue growth, it’s also gaining traction.

Intel didn’t say specifically how many microprocessors of each category it sold. But with embedded chips selling for just a few dollars, it’s likely that Intel will ship a greater number of chips into wearables and other businesses as it slowly expands its sales efforts.

The one big black mark? Intel's communications business, which reported an operating loss of $1 billion on revenue of just $1 million.  Ouch. Intel executives say they still sell many of its communications products at a loss. However, its "Sofia" mobile chip with an integrated 3G radio is in validation testing within Intel's labs, and will be out before the end of the year, executives said. A version with integrated LTE is still on track for next year.

Why this matters: As Intel moves into the holiday season, there’s every reason to believe that sales will be strong—in part, you can imagine, due to Intel’s first shipments of its Broadwell-class “Core M” processors. The other news is that as Intel grabs share in the notebook space, prices continue to fall. That’s good news for technology consumers like you and me, regardless of which manufacturer builds the chips.

Updated at 3:59 with additional details.

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