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Intel must learn from rough 2012

Intel's fourth quarter and full-year financials has the PC industry on edge. Sales and profits keep falling for the chip giant's PC client business and there doesn't seem to be an end to that trend in sight.

Revenue for Intel's PC Client Group came in at $34.3 billion (£21.6 billion) for 2012, a 3 per cent decline from 2011, while the business unit's fourth quarter sales of $8.5 billion (£5.4 billion) fell even more markedly, dropping 6 per cent from the same period the year before. Overall, sales of $53.3 billion (£33.6 billion) for the year were down just 1.2 per cent from 2011, but Intel's net income of $11 billion (£6.9 billion) for 2012 dropped from $12.9 billion (£8.1 billion) in profits from the year before for a whopping 15 per cent year-over-year decline.

The cause for Intel's misfortunes is well known and has been documented by numerous researchers, commentators and analysts. Mobile devices are on the upswing and PCs are yesterday's news in the most lucrative global markets, Intel is simply on the wrong side of this trend.

It's not all doom-and-gloom for Intel, as its Data Centre Group revenue is going up. Leading with its powerful Xeon brand of server processors, the company grew sales into the data centre by 6 per cent for the year and by 4 per cent for the quarter. The trouble for Intel is that Data Centre Group revenue of $10.7 billion (£6.7 billion) in 2013 isn't even a third of what the company made with flagging sales of its chips for PCs, so if the PC market keeps shrinking this year, the company will have a tough time making up for it even if the server market continues to grow.

In short, the chip giant either needs to put the brakes on the growth of the ARM-dominated mobile device market with more attractive ultrabook and hybrid tablet alternatives running on x86 chips, start to really grow its share in smartphones after years of failing to do so, or probably both.

Patrick Moorhead, principal analyst for Moor Insights & Strategy, figures that Intel has a good shot of accomplishing the first task this year but it could still be awhile before an Intel phone is more than just an edge product.

"To revive the PC market back to historical growth levels, Intel and its partners have to make the notebook more desirable than a 10in tablet. With what Intel has been showing, they have a decent shot with 9mm-thin, Haswell-based hybrids with prices ranging from $499 (£314) to $599 (£377)," Moorhead said.

Haswell is the code name for the 22nm chips Intel plans to bring out in the first half of this year as successors to its current Ivy Bridge generation of Core processors. At last year's Intel Developer Forum, the company teased a Haswell-based processor drawing just 10 watts of power, which Intel figures will offer a very attractive combo of performance, small size and battery life-extending goodness for touch-enabled tablets and hybrids that combine laptop and tablet functionality, putting makers of ARM-based parts on their toes.

That won't happen for a while but in the meantime, Intel and its traditional hardware partners have been showcasing Windows 8 tablets and hybrids running on Atom Systems-on-a-Chip (SoCs). What's more, newly minted hardware entrant Microsoft is scheduled to release the Core-based Surface Pro tablet later this month and Intel has also modified its x86 instruction set for the Android mobile operating system, showing that the chip giant has contingencies in place for cracking the tablet market.

Smartphones are a different story, Moorhead pointed out. Intel was talking up its Medfield-class Atom SoCs as competition for ARM all the way back in 2011. The chip giant did manage to get some Intel phones released in far-flung markets in 2012. Handset contracts should increase over the next 12 months, but the reality is that we may once again be looking at "wait-til-next-year" results in 2013, according to the analyst.

"In mobile, 2012 was a credibility year for Intel, which they built with handset and service providers," Moorhead said.

"In 2013, Intel is tripling their offering, with a premium solution called CloverTrail+ and an entry-level solution called Lexington. These entries sandwich the mid-range Medfield offerings. Intel will be more successful in 2013 in smartphones, but 2014 is where it all comes together with a brand new architecture at 14nm."

In the meantime, the growth of big data and its booming server business is helping Intel offset some of its difficulties in clients. Count the chip giant out? Of course not, but you have to wonder how, with all of its resources, Intel hasn't yet been able to put together a simple smartphone chip the leading manufacturers wants.