Intel Corp (INTC)

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Intel CFO Smith Reflects on Wearables, Internet of Things, Qualcomm
By Tiernan Ray


Thursday I was at Intel (INTC) headquarters in Santa Clara where CFO Stacy Smith was kind enough to give me a few minutes of his time.

With less than a month to go before the end of the quarter, Smith sadly did not have any of his famous haiku to offer me regarding earnings. I ventured that he might give Barron’s an exclusive by offering a freestyle rap performance regarding the financial outlook, but he laughed and demurred.

Smith was upbeat as he has been in past about health in the server market for Intel’s chips.

He also mentioned wearable computing as a bright spot that will help the company return to growth. (The Street is modeling a mere 0.7% rise in revenue this year for Intel, after a 1% decline last year.)

When I pointed out to Smith that wearables so far, from what I’ve seen, did not seem much more than a fad, he tried to put some perspective on the matter.

“It’s natural with an emerging category you will see some stuff that is probably testing the waters, and maybe some other stuff that seems like it’s going to be a hit,” he said.

I asked Smith if for Intel, which has invested a lot, including the acquisition of watch maker Basis Science in March, and which has come up with some of it’s own prototypes, such as the “wireless charging bowl” shown at CES in January, there is enough volume that the chip maker can make money even on stuff that just “tests the waters,” without being a hit, and he agreed. “Yes, that is possible.”

More to the point, argues Smith, the good thing is that Intel is early in the category, will which should pay dividends.

It may be that with tablets we were not serious and not quick enough to jump on that trend.

“Wearables it is quite a different situation it’s really important.”

Smith was quick to add that wearables are just one small segment of the overall Internet of Things market. He sees the same benefits of Intel’s technology for low-power high-performance devices for the buck going into infrastructure products such as HVAC system.

“We’ve been working with people who, for example, will install an HVAC system, and then they have an opportunity to sell a monitoring service for that system, and they are going to go out more money off of that than the traditional products they would sell, and that’s using Intel’s technology,” he said.

Regarding the personal computer market, he’s optimistic it will at least not be as much of a drag to the rest of the business going forward. I asked if he saw signs of a rebound in consumer purchasing, given positive feedback this week about PCs from analysts covering the Computex computer conference. Smith didn’t outright concur, but suggested reasons why there could be better results in consumer going forward.

“You’ve got now a long gap in time, and some of those consumer PCs are getting pretty long in the tooth,” said Smith. “the last real purchasing that we saw on the consumer side was probably 2011. So, that means we’re due for a refresh.”

The way he sees it, “The consumer who goes into an electronics store looking at a personal computer versus a tablet, they’re going to see some pretty compelling reasons to buy a personal computer instead.”

“Because after all, if they’ve had those PCs now for three or four years, the difference they’re going to get buying today’s technologies, which are vastly improved, is a much bigger difference than replacing, say, their two-year-old tablet.”

I asked Smith about the company’s battle with Qualcomm (QCOM) for the mobile chip market, and his remarks were consistent with what he had told me back in February.

“We advance Moore’s Law — that’s going to be our playbook. And we’re going to bring a lot of new features across several product categories — mobile client devices, servers, Internet of Things.”

“Qualcomm obviously has a really strong heritage in communications, and they’re going to now have to invest in areas where we are strong where they don’t have as great a background,” meaning, presumably, things such as server technology.

Asked Smith what the timeframe is in which it’s chip manufacturing process technology advantage becomes blindingly obvious to everyone who doesn’t so far grasp it or believe it.

“The process will play out in different segments of the market in different time frames,” he said. Another words, no date could be offered at the moment for when that process advantage will become clearly inevitable in the market to all.
http://blogs.barrons.com/techtraderdaily/2014/06/06/intel-cfo-smith-reflects-on-wearables-internet-of-things-qualcomm/