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Intel Corp. (Nasdaq: INTC) stock rose as much as 4.5% Wednesday after the chipmaker's Q1 earnings showed double-digit growth in its data center business.
That's just what investors wanted to see, as the PC and mobile chip division, now combined into something Intel calls its Client Computing Division, saw revenue decline 8% year over year.
INTC stock rose as high as $32.94 in mid-day trading. Intel reported earnings yesterday (Tuesday) after the market close.
Revenue for the Data Center Division was up 19%. Better still, Intel CEO Brian Krzanich said during the conference call that the company sees continued strong growth from this division for several years.
"Over time, we believe we can continue to grow this business at a mid-double-digit, mid-teens kind of growth rate, so 14%, 15%, 16%," Krzanich said.
The Internet of Things division, another area that Intel has targeted for growth, had a revenue increase of 11%. And revenue from the unit that sells NAND memory chips was up 14%.
INTC Stock Will Gain from Transition
It's all part a long-term transition at Intel to diversify with the intent of reducing the company's dependency on PC sales. The Client Computing Group is still producing 58% of Intel's revenue, but that's down from 63.4% a year ago.
Progress here is even more obvious when you look at earnings. In the year-ago quarter, 73.6% of Intel's profits came from the Client Computing Group. In Q1 of 2015, just 53.9% of the company's profits came from that division.
Intel will continue to milk its PC business for all it can, however. And a positive bump from the release of Microsoft Corp.'s (Nasdaq: MSFT) Windows 10 this summer should boost this division, at least for 2015.
That buys Intel more time to build up business in its other divisions.
The tangible progress pleased analysts as well. Both RBC Capital and Wedbush Securities upgraded their outlook on Intel stock today.
Analysts Boost Intel Stock Price Targets
Wedbush's Betsy Van Hees raised her rating on INTC stock from "Neutral" to "Outperform," and her Intel stock price target from $34 to $37. She cited the boost from Windows 10 as well as Intel's plan to cut the losses from its mobile chips, which it has heavily subsidized to increase market share.
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RBC's Doug Freedman raised his rating on INTC stock from "Sector Perform" to "Outperform," and his price target from $38 to $40.
"Our upgrade is about double-digit data center growth driving a 25% increase in cash flow over the next two years," Freedman wrote in a note to clients.
The overall Intel Q1 earnings were pretty mundane, with the weaker Client Computing Group numbers offsetting the stronger numbers in the other divisions.
Revenue was $12.8 billion, just under Wall Street expectations for $12.9 billion and flat year over year. Earnings per share was $0.41, up 8% from the same period a year ago and in line with forecasts.
The revised guidance for 2015 the company promised last month was lower, but not by as much as some had feared. So that, too, counted as good news. Intel forecast revenue of $13.2 billion for Q2 and flat revenue for all of 2015.
Krzanich refused three times during the conference call to answer questions about Intel's possible acquisition plans. Over the past several weeks rumors that Intel was buying fellow chipmaker Altera Corp. (Nasdaq: ALTR) emerged and then were shot down.
But a deal for either Altera or Altera's rival, Xilinx Inc. (Nasdaq: XLNX), would help Intel in its drive for diversification. Both companies make chips popular with phone networks, computer networking equipment, and data centers.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.