Intel’s Business Transformation: The 2017 Impact PART 7 OF 10
Intel’s Programmable Solutions Group
In the previous part of this series, we saw that Intel (INTC) is betting big in the memory market as it anticipates 3D XPoint to boost the demand for SSDs (solid state drives). The company is also eyeing PSG (Programmable Solutions Group) in order to grow in the AI (artificial intelligence) and IoT (Internet of Things) markets. PSG was formed with the acquisition of FPGA (field programmable gate array) maker Altera.
Earnings from PSG
PSG revenue fell in fiscal 3Q16 and 4Q16. Rival Xilinx’s (XLNX) revenue rose those same quarters. PSG’s fiscal 2016 revenue rose 7.0% YoY (year-over-year) to ~$1.7 billion, driven by a strong demand in compute and storage. PSG also launched its first 14nm (nanometer) FPGA Stratix 10 during the year. The product was received well by consumers. In fact, it has the largest demand pipeline among all of Altera’s products.
PSG reported an operating profit of $80.0 million in fiscal 4Q16, which equates to an operating margin of 19.0%. That margin is far below Xilinx’s operating margin of 27.8% for the same quarter. That’s because Xilinx is one year ahead of Altera in terms of technology. That has helped Xilinx command a premium price for its products.
The acquisition of FPGA technology has helped Intel enter the networking market and expand its storage offerings. Looking from this perspective, Altera has gained share relative to its competition. Intel is now expanding its FPGA offerings in the IoT space.
Intel’s new FPGA products for IoT devices
Intel has unveiled Cyclone 10 GX and Cyclone 10 LP (low power) FPGAs, which are expected to hit the market in the second half of 2017. The company also plans to release software support for these FPGAs through its Quartus programming software.
Cyclone 10 GX FPGAs are targeted at high-performance applications such as industrial machine vision, machine tools, video streaming, smart city surveillance, and robotics. The FPGA is built on Taiwan Semiconductor Manufacturing’s (or TSMC) (TSM) 20nm (nanometer) node and delivers up to 134 GFLOPS (giga floating-point operations per second) of performance. Cyclone 10 LP FPGAs are targeted at low-power applications such as sensor fusion, interfacing, motor controls, and input-output expansion for CPUs (central processing units).
Hexa Research expects the FPGA market to grow at a CAGR (compound annual growth rate) of 9.0%, from $6.0 billion in 2015 to $10.0 billion by 2024.
Intel’s rising capital expenditure and falling earnings could pressure its cash flows and thus its dividends.
Next, let’s take a look at Intel’s balance sheet and its ability to pay dividends even when growth is slow.