Intel sells more tablet chips but profits still fall

Intel shipped 5 million chips for tablets in Q1, but revenue dropped 61% as it has been paying tablet makers in a bid to compete better with ARM

Intel shipped 5 million processors for tablets in the first quarter, but profits fell as PC sales remained weak.

Net income for the quarter ended March 29 was $1.9 billion, down 5 percent from a year ago, Intel said on Tuesday. Revenue increased 1 percent to $12.8 billion.

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The slight revenue improvement came largely from its Data Center Group, which sells Intel's Xeon server products. Revenue from its Mobile and Communications Group, which sells chips for tablets and smartphones, tumbled 61 percent.

Intel has been paying tablet makers to cover the cost of using its chips in a bid to compete better with ARM. As a result, it doesn't make much money today from the tablet processors it sells.

Revenue from its PC Client Group was $7.9 billion, down 1 percent year over year. Intel is trying to expand its mobile and data center businesses to offset the ongoing decline in the PC business.

"In the first quarter we saw solid growth in the data center, signs of improvement in the PC business, and we shipped 5 million tablet processors, making strong progress on our goal of 40 million tablets for 2014," said Intel CEO Brian Krzanich, in a statement.

In January Intel announced that its latest chip for smartphones, code-named Merrifield, would be available this quarter. That's another market where it has struggled to do well in the past.

Last week Intel said it would change how it reports its financial results, creating a new Internet of Things Group. It includes chips for embedded devices and its Wind River real-time operating system. Sales for that group were up 32 percent year over year, to $482 million.

But the slump in PC sales hurt the company most. Worldwide PC shipments were down 4.4 percent in the first quarter from a year earlier, IDC said last week.

Intel will ship a new PC chip code-named Broadwell in the second half of the year, based on a more power-efficient, 14-nanometer manufacturing process. It will be hoping for a boost from that product.

It's also been taking steps to reduce costs. Last week it said it would cut 1,500 jobs in Costa Rica, part of an overall effort to reduce its headcount 5 percent this fiscal year, or by the end of December. That would be about 5,000 workers total.

Agam Shah covers PCs, tablets, servers, chips and semiconductors for IDG News Service. Follow Agam on Twitter at @agamsh. Agam's e-mail address is agam_shah@idg.com

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