Intel reported record results for 2017 and the fourth quarter on Thursday (Januarary 25, 2018). The PC market may be slowing, but it is a cash-cow. In the meantime, Intel pins its hopes on AI and autonomous vehicles.

Financial analysts have focused on Intel Corporation's results beating market expectations and the shift to data center products. The reality is that their PC Business products delivered record revenues and record profits. The PCG business is an Intel Cash Cow. 

For those who know Intel for a long time, it is not a surprise that their Data Center business is growing. And it is not new news either. Intel pumped analysts with the news that data center businesses (everything that is not PC-related) was 47% of the company revenue. Yet five years ago, it was 40%. Given the macro-economic changes in the IT market over the same period, this is not a seismic shift in Intel's business. It is even less impressive given the transformation of other players in the market such as their David-sized rival NVIDIA.  

Such as it is, the results (found in detail here) were good results. The key investments for the future include IoT, artificial intelligence, and self-driving cars. During the financial call with investors, Brian Krzanich focused intently on the potential in AI and autonomous vehicles.They claim a significant acceleration in adjacent businesses. The cheered about the number of automotive OEMs with whom they are engaged with their Mobileye product. The company also stated that their autonomous driving platform (level 3 to level 5) should be sampling in the coming months. They feel this will be the most advanced, scalable, efficient system available. With 24 TFLOPS of performance in a 10W platform, the company claims that it is 2.5 times more efficient than the competition. The unstated competition would be NVIDIA with their 30W Drive PX system that delivers 30 TFLOPS of AI computing performance. 

Financially, the company is clearly focused mostly on its "owners". While they point out that the tax-law changes allow them to invest more, their plans for 2018 include a 10% increase in dividends and continued restrictions in costs (personnel). The company generated $10.3 billion in 2017 and redistributed 8.7 billion to shareholders through stock repurchases ($3.7 billion) and dividends ($5.1 billion).  Clearly, the tax law changes are a boon to a company already rolling in cash. 

Spending levels are planned to be flat, this will increase the relationship of expenses to revenues. While the company is increasing spending in artificial intelligence, autonomous vehicles, and their initiative to generate discrete graphics, they plan to continue to restrict spending on sales, marketing, and personnel costs. The company refers to these spending cuts as "continuing efficiencies". 

The outlook includes an increase of approximately $2 billion in revenues and an increase of approximately $3 billion in free cash flow. If you are an investor in Intel, then you should be happy. There is a reason the stock price increased more than 10% in 2 days. 


The PW Perspective

Intel claims to be radically changing their business. Stepping back, it seems more like a business transition that reflects the existing dynamics in the technology sector. We don't see their business changes as dramatic or surprising. As for 2018, Intel has long been a forecasting powerhouse. There is no reason to seriously doubt or in any way question their forecasting. That is comfortably boring for investors and those "owners" can expect a 10% higher return in 2018. 

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