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Intel’s Krzanich does this best duck impression

Duck Below Bury

Intel might be fighting back the flames of the Spectre and Meltdown security flaws, but CEO Brian Krzanich has done his best to put on a calm front for investors during the latest earnings call.

We can only imagine Krzanich, much like a duck, is calm on the surface, but frantic below. The CEO managed to avoid any backlash when offloading any many Intel shares as possible prior to the Spectre and Meltdown announcements, even finding time to organization some patches to the vulnerabilities. These patches did not live up to the promise, but Krzanich is confident the flaws will not weigh heavy on Intel’s financial performance.

“From a cost standpoint, we’ve baked in and we’ve talked about that we don’t expect any material impact of this security exploit on our spending or product cost or any of that,” said Krzanich.

“From a fourth half standpoint, we actually made our forecast and we’ve checked it as we go through this the first two weeks here of the year against our prior forecast to make sure that the forecasting incorporated any changes or any signs we’re seeing up or down.”

Intel has absorbed the majority of the backlash from the industry, though this quarterly call seemed to be focused on calming investors. Intel might be under pressure right now, Krzanich seems to be saying, but don’t worry your pretty head about it. Intel will carry on and doesn’t expect there to be any ‘material’ impact on the business.

What ‘material’ means in this case is anyone’s guess. Krzanich is unlikely to reveal any details about the reallocation of resource or the financial cost of the vulnerability, using vague and dismissive language instead. Of course, Krzanich was never going to do anything other than present a positive front, that is what a good CEO does after all, but we are struggling to believe everything is groovy at Intel HQ.

Looking at the financials, Intel has good reason to be happy. Fourth-quarter revenue was $17.1 billion, while full-year revenue stood at $62.8 billion. These figures are 8% and 9% up year-on-year respectively, with data-centric revenue up 21% compared to Q4 in 2016.

This is the challenge Intel faces right now; can it transform itself from a PC-centric business to a data-centric one? IBM has seemingly successfully navigated the choppy digital transformation waters with its first quarter of growth in five years, and Microsoft make the transition to a cloud-business years ago, so it can be done. Intel is certainly growing the relevant business units, data centric revenues now account for 47% of the total, so it is certainly heading in the right direction.

Looking specifically at the data centre business, the core business grew 18% while adjacencies took a 35% uplift. Breaking down the market segments, cloud was up 35%, enterprise and government up 11% and CSPs 16%. Elsewhere in the world of Intel, the IoT Group was up 21% with operating income up 43%, Non-volatile Memory Solution Group up 9% and Programmable Solutions Group growing 35%.

The one group which has had little or no attention in the earnings is security, or McAfee as the team has now reverted to its previous name. Intel has ushered the majority of this brand to the exit, divesting 51% of the business to TPG Capital last year, though it hasn’t managed to get clear of this headache just yet.

Hats off to Intel for trying to cash in on the security craze before it hit euphoric levels back in 2011, though let’s look at this acquisition as what it is; a failure. Intel paid $7.68 billion to acquire McAfee back in 2011, and while it has recouped a healthy proportion of this, when you take into account inflation, it is unlikely to be as favourable reading. The evidence of this failure to diversify is evident in the sale of a majority holding in the business to TPG Capital.

Sweeping this car crash to the curb, Intel is looking like a business which is starting to get ready for the connected economy. The team expect the positive momentum to continue throughout 2018, forecasting full-year revenues of $65 billion, which would be 4% growth, as well as 5% year-on-year growth for the first quarter to $15 billion. Data-centric revenues are expected to be up mid-teens, led by strong memory growth, though the PC-centric business will continue to decline in the low single-digits.

The fact that data-centric is growing faster than PC-centric is declining is a good sign. Krzanich has shown us he knows when to offload shares, perhaps this is evidence is knows how to transform a company into a mean digital-ready machine.

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