Intel Diversifying into Wearable Devices

Recently published PC shipment reports by both Gartner and IDC suggests that the decline in the market may have finally stabilized. Worldwide PC shipments during the quarter fell 1.7% to 76.6 million compared with the 6.9% decline registered a quarter ago. Despite the stabilization, PC chip manufacturer Intel (Nasdaq: INTC) realizes the need to diversify operations.

Intel’s Financials
Intel’s first quarter revenues grew 1% over the year to $12.8 billion, in line with the market’s expectations for the quarter. EPS of $0.38 fell from previous year’s $0.40, but managed to exceed the Street’s projections of $0.37.

By segment, PC revenues fell 7% to $7.94 billion. Intel’s push into other segments has helped control their revenue decline. Data center revenues from server products grew 11% to $3.09 billion. Intel classified a new segment Internet of Things, which includes embedded devices such as wearable products. The segment’s revenues grew 32% to $482 million while mobile and communications revenue fell 61% to $156 million. Revenues from their software segment grew 6% to $553 million and from all other sources grew to $545 million.

For the current quarter, Intel projected revenues of $12.5 billion-$13.5 billion, compared with the market’s projections of $12.9 billion. They expect to end the year with revenues of $52.71 billion, short of the Street’s target of $53.15 billion.

Intel’s Diversification
Intel may have had a strong foothold in the PC market, but they have lost a lot of ground to competitors in the tablet and smartphone market. According to Strategy Analytics, the smartphone apps processor market is expected to grow to $30 billion by 2018. The tablet processor market is expected to be worth $7.2 billion in 2018. Intel plans to focus on this segment extensively.

Last quarter, Intel shipped 5 million tablet chips as part of their plan to ship 40 million tablet chips during the year. The task is uphill considering that Intel shipped a comparatively meager 10 million tablet chips last year. To help reach this goal, Intel is already offering big subsidies to manufacturers to include their chips on future tablets.

In March this year, Intel also announced the acquisition of wearable health tracking device manufacturer Basis Science for an undisclosed sum. Basis Science is best known for their wearable Basis band, which is an advanced health tracker that tracks the user’s heart rate, sweat, motion, and sleep and synchs up with iOS- and Android-based devices. The device retails for $200 each and looks like a wrist watch. It also conducts some basic sleep study by recording if the user was in light sleep, REM sleep, or deep sleep. Basis then uses this data collected to provide analytics into the user’s health stats. Analysts estimate that the acquisition would have cost Intel $100 million-$150 million. Intel wants to leverage the acquisition to enter into the wearable device market and hopes that Basis will give them the much needed market presence and talent in the segment.

The market is pleased with Intel’s moves. Their stock is trading at $27.04 with a market capitalization of $134.5 billion. It touched a 52-week high of $27.24 earlier last week.