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Intel tops Q3 expectations despite a $1B loss in mobile biz

The world's largest chipmaker by sales continued to post stronger numbers in its PC and data-center businesses, but its mobile unit posted just $1 million in revenue and another huge loss.

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Despite heavy losses, Intel CEO Brian Krzanich has signaled a continued commitment to mobile chips. Intel

Intel said its third-quarter profit rose a better-than-expected 12 percent, as the chip giant's PC and server-system sales continued to make up for dismal results in its mobile unit.

The company on Tuesday posted a profit of 66 cents a share, compared with estimates of 65 cents a share from analysts polled by Thomson Reuters. Revenue grew 8 percent to $14.6 billion, beating market predictions of $14.4 billion.

Shares rose slightly after hours to about $32.33.

Intel, the largest chipmaker worldwide by sales, has been working to diversify itself so it's less dependent on its core businesses of providing chips for PCs and server systems. Those efforts are slow-going, with the Santa Clara, Calif.-based company losing billions of dollars trying to expand its chip sales for mobile devices amid fierce competition from rivals including Qualcomm.

Intel said Tuesday its mobile and communications group -- which includes chips for smartphones and tablets -- reported an operating loss of $1 billion during the quarter, compared with a loss of $810 million a year earlier. Revenue shrank to just $1 million, from $353 million a year earlier, as it appears subsidies Intel pays to manufacturers to win new mobile business drained nearly all the mobile unit's revenue for the quarter.

"We knew this was going to be a year of significant investment and significant loss." Stacy Smith, Intel's chief financial officer, said in an interview. "While none of us like the size of that loss and we're committed to reduce it next year, operationally we're doing exactly the things that we have to do in a very important business."

Doug Freedman, an analyst for RBC Capital Markets, questioned Tuesday whether Intel would be able to sustain its new mobile customers when it stops offering subsidies. He said industry watchers want to see Intel win in the mobile space with competitive products "that are deserving of market share," not subsidies.

However, he noted that investors are far less concerned about the mobile losses, with Wall Street looking much more at the core PC and server-systems businesses, which have posted strong growth and helped buoy Intel's stock by 24 percent so far this year.

Intel's PC client unit posted operating profit of $4.1 billion, a 27 percent increase, and $9.2 billion in revenue, a 9 percent rise from the year earlier. The data center business reported 26 percent higher profit to $1.9 billion, with revenue improving 16 percent.

PC sales have been in decline for years as consumers transition to mobile devices. However, Intel -- which sells most of the chips that power PCs and data centers -- has benefited from a recent uptick in PC demand. That growth, which has helped mask weakness in the mobile business, comes partly from business customers upgrading to machines running the newer Windows 8 operating system, since Microsoft ended technical support for Windows XP this year.

While business PC sales have been a bright spot, consumer PC demand has been more challenged lately, with industry watchers wondering whether Intel will be able to sustain its recent growth after companies finish up refreshing their computers.

For the latest period, Intel posted a profit of $3.3 billion, or 66 cents a share, up from $3 billion, or 58 cents a share, a year earlier. The 12 percent rise follows a 40 percent increase in second-quarter profit for Intel, thanks to strong business PC and data center sales.

The company expects its revenue for the fourth quarter will be $14.7 billion, plus or minus $500 million, ahead of market predictions of $14.5 billion, thanks in part to a slightly improved consumer PC market.

Despite heavy losses in the mobile-chips unit, Intel last month showed its commitment to building up that business by agreeing to pay $1.5 billion for a 20 percent stake in Spreadtrum Communications and RDA Microelectronics, two Chinese mobile-chip makers owned by the government of China. The deal, which will be focused on smartphone chips, comes after Intel in May entered a strategic deal with Chinese chipmaker Rockchip to help Intel push into entry-level tablets. With both deals, products won't start shipping until next year, so a turnaround in the mobile business could take time.

The company has been working to get into tablet computers by offering subsidies to manufacturers, hurting its profit in the process, but Intel has kept pace with its goal of putting its mobile chips in 40 million tablets by year's end.

In another new business effort, Intel also has been pushing aggressively into wearables technology -- introducing in recent months smart earbuds, a luxury smart bracelet, and a partnership with watchmaker Fossil -- but those efforts are still in their early days and aren't contributing much to the company's financial results.

Intel's results come a few days after fellow chipmaker Microchip warned of an industrywide correction that could weaken financial results in the coming months. Despite last week's sell-off of chip stocks, Intel's shares are still up substantially so far this year, thanks to strong results from its core businesses.

Updated, 3:51 p.m. PT: Adds Intel finance chief comments.