Intel recently replaced its CEO. Bob Swan is out, replaced by Intel engineering veteran, Pat Gelsinger. The new man was seen as something of a lifeline, a connection to past glory, and a potential savior for the company. Some even questioned if there was much left to save. One person can accomplish great things, but Intel is big. There’s only so much one man can do.

For keepers of the Intel doomsday clock, the financial results revealed last week should have at least added a few more ticks to the countdown. It wasn’t all perfectly rosy. Spin doctors could easily highlight the negative aspects of Intel’s 2020 performance. Some investors reacted to the blemishes more than the bright spots.

After an initial surge on January 21, the day the 2020 fiscal year results were published, Intel stock has been on a declining, albeit undramatic, trend.

In the most simplified analysis, there must have been more than a little good news since Intel increased its annual dividend to $1.39 per share after earnings per share rose 5% compared to 2019. Gross revenue for the company was also up 8% for the year reaching $77.9 billion in 2020.

Some results painted a different picture as net income and margins were down year-over-year. Looking through the reports, you can see that the NAND business was a bit of a drag. Divesting those operations to SK Hynix was a good idea. The transition to complete that transaction will take some time with regulatory approval not expected until late in the year. Regardless of the time-frame, it seems good for Intel to avoid commodity businesses and concentrate on high margin enterprises that have been the hallmark of its leading-edge mentality for decades.

If Intel is recognizing and addressing under-performing business groups (in the short term view, NAND contributed $600M of operating income in the first half of 2020), where are they doing better?

Given general impressions of our study-at-home, work-from-home (just stay-at-home already!) year that just ended, one may be quick to assume that Intel benefited from an increase in personal computer purchases driving sales of its traditional microprocessors for PCs. That is certainly true, and the Intel earnings presentations indicated very strong notebook computer demand (up 20%) that was offset partially by decreased desktop (down 10%) and server processor sales.

Demand was strong in the PC space, but this is not sustainable (regardless of how long pandemic rules persist). Furthermore, there were downward pressures on a number of products like notebook prices that were down 15% for the quarter.

PC business results (source: Intel).

Intel accounts for this range of products in the Client Computing Group (CCG). Revenue for this business unit grew by 9% last year. Operating margins stayed steady, so income for CCG was up 10%.

But as we know, the future isn’t the PC. Intel has limited to no presence in the mobile space, and this has been highlighted as a failing for many years. But mobile, too, may be less attractive than it once was. Perhaps Intel has just as well “skipped this node.”

We are in the midst of a rapidly expanding data universe. Cloud, edge and other facets of the data-centric businesses are key to future success.

Data Center Group (DCG) businesses did very well for Intel last year with platform revenues up 11% annually. Prices did see some limited pressure, however, down 3%. The market segments performed well. Enterprise and government sales declined, but cloud and communications service providers both grew substantially. Intel saw better sales with cloud compared to communications suggesting that it may have good prospects upcoming due to the 5G rollout.

Data center business results (source: Intel).

For the 2021 outlook, Intel is suggesting a bit of a rocky start in the first quarter with significant declines in revenue, operating margin, and earnings per share.

There are many unanswered questions about the road ahead for Intel. With some delays to rolling out new manufacturing process nodes, speculation has been rampant that Intel should drop their wafer manufacturing, and pressure to do so has mounted. Intel plans to migrate some processor designs to TSMC later this year. I think that is a good sign of a mature approach to outsourcing manufacturing of some products to keep operations as flexible as possible. Intel needs to stay on the cutting edge of innovation while keeping a few mature products adjacent the newer products but find the most cost-effective manufacturing alternatives for non-premium designs.

Intel has a challenging road ahead, but it is in a strong position and has the talent to thrive in an ever-evolving technology landscape. News of its demise has been greatly exaggerated.