Good day, ladies and gentlemen, and welcome to the Intel Corporation Fourth Quarter 2013 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mark Henninger, Director of Investor Relations, please go ahead, sir.
Thank you, Jamie, and welcome, everyone, to Intel's Q4 2013 Conference Call. By now, you should have received a copy of our earnings release and the CFO commentary that goes along with that. If you've not received both documents, they're currently available I'm joined today by Brian Krzanich, our CEO and Stacy Smith, our Chief Financial Officer. In a moment, we'll hear brief remarks from both of them followed by Q and A. Before we begin, let me remind everyone that today's discussions contain Forward looking statements based on the environment as we currently see it and as such does include risks and uncertainties.
Please refer to our press release for more information on the Also during this call, we use any non GAAP financial measures or references. We We'll post the appropriate GAAP financial reconciliation to our website, intc.com. So with that, let me hand it over to Brian.
Thanks, Mark. Q4 was a solid finish to a year of transitions, both for the computing market and for Intel. We spent the year building a foundation in important growing segments of computing. And as a result, we are better positioned as we enter 2014. Importantly, the beat rate of innovation inside the company has also improved.
I'll touch on each of these themes, but I'd like to start with our results. The company's revenue was down 1% for the year, driven by a declining PC TAM. The PC client group was down 4% for the year, But the business began to stabilize and actually grew a bit in the Q4, achieving all time record i5 and i7 unit shipments. The desktop business was particularly strong in Q4, growing 11% over last year. In the data center, we finished the year up 7% with record server units and revenue.
Cloud was up 35%, storage was up 24% High performance computing was up 18%. Enterprise, however, fell short of our expectations for the Q4 and the year, as we overestimated the rate of recovery among corporate buyers. In our other businesses, the Intelligent Systems business, We saw growth of 21%, with retail up 16% and transportation up 21% for the year. Networking grew 31% for the year. And rounding out the list, our NAND and McAfee businesses grew 15% and 4%, respectively, Bold achieving record revenue.
When I spoke with you in November, I shared my vision. If a device computes, it does it best with Intel, from the Internet of Things to the data center. I outlined the areas that are changing to make that vision a reality. Among the changes was a shift towards a more outside in view of our industry and an intense focus on bringing innovation to market quickly. Last week at CES, there was evidence of our progress as we demonstrated technologies that weren't on our roadmap just 6 months ago, Technologies that we expect will be available this year.
We showed you Edison, an Intel based platform for Internet of Things In the form of an SD card, we unveiled several innovative wearable solutions and we announced Intel device protection Technology to harden IA based Android for the enterprise. Our disclosure in November of a new smartphone and tablet roadmap that will include Sofia, Our first IASSC with integrated comms later this year is further evidence that we are innovating and bringing products to market at a faster pace. Looking ahead, 2014 will be an exciting year as we build further on this new foundation.
We have established a goal
to grow Our talent volume to more than 40,000,000 units with an emphasis on the value segment. After finishing 2013 with more than 10,000,000 units and a Strong book of design wins, we're off to a good start. We also exited the year having made important strides on our 14 nanometer process technology. Yields improved significantly in Q4, putting us squarely on track to begin Broadwell production later this quarter. Our customers and partners also continue to evolve By the time we enter the back to school selling season, we'll have nearly 70 unique 2 in-one designs with outstanding battery life and performance across a range of price points and form factors.
And later this quarter, we'll launch ID. Bridge EX, which will bring the largest generation to generation improvement in MP Server performance since 2010. Our work to improve our velocity and position the company for the future of computing isn't done, but our recent progress is testament To what's possible when we focus and bring all of Intel's assets to bear. We're building on a foundation upon which we'll compete For years to come, and we're beginning this year in a better position than we began last year. With that, let me turn the call over to Stacy.
Thanks, Brian. The 4th quarter came in consistent with expectations with a return to financial growth and was a solid ending to a challenging year. For the Q4, revenue came in at $13,800,000,000 up 3% from a year ago. PC client group revenue was flat from a year ago. Our data center group grew 8% from a year ago.
And relative to our expectations at the beginning of the quarter, we saw higher PC client group revenue, partially offset by lower growth in our data center group. Gross margin of 62% was flat for the 3rd quarter and one point above our guidance. Operating income for the Q4 was $3,500,000,000 up 12% from a year Earnings per share was $0.51 For full year 2013, revenue was $52,700,000,000 Gross margin was 60%. Operating income was $12,300,000,000 Net income was $9,600,000,000 and earnings per share Was $1.89 While the PC market was down on the year, we saw the market stabilize in the back half of the year With 4th quarter PC units up from a year ago. Additionally, we saw strong tablet growth in the back half of the year and inclusive of PC and tablets, Our unit growth in the 4th quarter was up almost 10% from a year ago.
We decreased inventory levels by almost $400,000,000 in the 4th quarter. And across the worldwide supply chain, inventory levels continue to be healthy. Gross margin of approximately 60% in 2013 It's down 2 points from 2012, driven by higher 14 nanometer factory start up costs. Spending on R and D and MG and A was $18,700,000,000 in 20.13, 35 percent of revenues, down from the forecast at the beginning of the year, but higher than our long term model. Operating income was $12,300,000,000 down 16% year over year.
Earnings per share was $1.89 down 11% from a year ago. The business continued to generate significant cash With almost $21,000,000,000 of cash from operations in 2013. Total cash balance at the end of the year was roughly $20,000,000,000 Up approximately $2,000,000,000 from a year ago. We purchased $11,000,000,000 in capital assets, paid $4,500,000,000 in dividends and repurchased over $2,000,000,000 of stock. As we look forward to the Q1 of 2014, We are forecasting the midpoint of the revenue range at $12,800,000,000 down 7% from the 4th quarter.
This forecast is in line with the average seasonal decline for the Q1. We are forecasting the midpoint of the gross margin range for the Q1 to be 59%. The 3 point decline from the 4th quarter is primarily driven by higher platform write offs as we start preproduction builds of Broadwell in 14 nanometer and We expect the data center group revenue to be up in the low double digits and the PC client group revenue to be down in the mid single digits. We are forecasting the midpoint of our gross margin range at 60% flat to 20.13. We expect start up costs And we are forecasting spending for the year at $18,600,000,000 and expect capital spending of $11,000,000,000 both of which are approximately flat to 2013.
Within the flat spending, we're advancing the strategy of the company by shifting investments The data center, tablets and low power SoCs. The 4th quarter was a solid finish to a challenging year. Financially, the Q4 of 2013 was better than the Q4 of 2012. More importantly, we're making changes that continue to improve our competitive position. For devices that compute, Our vision is, if it computes, it does it best with Intel.
Towards that end, we are well on our way to reinventing the personal computer. With all in ones, 2 in ones, convertibles and detachables, the amount of innovation in the PC market is unprecedented. Building on this leadership, we will start production wafers on Broadwell, a 14 nanometer product targeting these form factors in the Q1. In the tablet market, we launched the Baytrail SoC and have started to expand our footprint and market segment share in this growing market. And in the Internet of Things market, we are bringing new architectures like Clark and Edison to build on our current leadership position.
We are uniquely situated to benefit from the other end of the compute continuum as the infrastructure that supports all these devices expands. Our data center business continues to see robust growth as a result of the build out of the cloud and the explosion of devices that compute and connect to the Internet. In 2013, we extended our leadership at the high end of the data center with the launch of the IV Bridge based VN product line. At the low end of the data center, we extended our leadership with the launch of Abboton targeting the micro server market. We plan to build on this foundation as we launch the Haswell based EON family in 2014.
At the foundation of this innovation, we continue to advance Moore's Law faster than the rest of the industry. This gives us the world's highest performance and lowest power transistors and will result in a growing cost advantage over time. With that, let me turn it back over to Mark.
All right. Thank you, Brian and Stacy. As we move on to the Q and A, as is our normal practice, we would ask each participant to ask one question and just one follow-up if you have one. Jamie, please go ahead and introduce our first questioner.
The first question comes from Mark Lipacis from Jefferies.
Thanks for taking my question. At the Analyst Day, you addressed your view on transistor density and your expectation for leadership On that vector, and but I have to say, discussing that idea with investors, there's a consensus view that seems to Be that Intel has an inherent wafer cost disadvantage relative to TSMC that neutralizes or more than neutralizes your Your transistor density advantage and the argument is that TSMC ships more wafers and therefore has more better purchasing power than you and has lower labor costs and net net They have just a big huge advantage on wafer cost that you should have a hard too hard of a time to overcome. So my question is, Do you think that's a fair view? Can you help us talk to the relative elements of the wafer costs and how you think you can compare? Any kind of help that you could give us on the cost dimension would be extremely helpful.
Thank you.
Sure. This is Brian. I think The first thing to remember is that what really counts in all of this is transistor cost. And what we really talk about in our Moore's Law curves and when we talk about transistor density is driving a consistent cost reduction of the transistors. And so wafer cost is one segment of that.
I'm not going to comment TSMC's wafer costs versus our wafer costs, but we feel confident that our relative level of scaling and our Internal wafer costs are such that we believe we have a leadership position in transistor costs. Remember, when you're talking about any product, whatever it is, A logic product that's a low end microprocessor for a wearable or an Internet of Things or a high end Xeon server, You're talking about the number of gates and hence the number of transistors required to put that logic device together. It doesn't matter whose technology it's on to some extent. It doesn't matter what node. And so the more cost effective those transistors are, whether it's $500,000,000 or $3,000,000,000 the lower the product cost is.
And that's Really what we focus on and why we focus on transistor costs. So I think we stand by our what we said at the Investor Meeting.
Thank you. And if I could have a follow-up, there's been some news reports about the Fab 42. Could
Sure. I'll start and then Stacy can talk to you about any of the financial Discussion of it. You start these construction projects, we've talked about it in the past. You have to start them 3 years Fully in advance, they're very complex, some of the most complex, if not the most complex construction projects you could imagine. If you start those 3 years in advance So when you're ready for operation, we started this one about 3 years ago.
If you go back and look 3 years ago, our view of The PC industry and PC growth, it was much more robust than what has played out and is our forecast today. And so what we've done as we've brought it online is we've been very conservative with our how we manage the project. We Brought it up until the shell is complete and facilitated from a construction standpoint and we've held back putting equipment in Until we see the demand requirement. And that's really what we've done. We've done that in the past.
You can I've been in Intel's manufacturing for 30 years. You can go back in time and we did that fairly frequently. And that's what we've done with Fab 42 as well. We've Hold it back until the demand requirement comes about.
Yes. I don't have a lot to add to that. I would just say that the financial impact of this is actually pretty minimal. As Brian said, we built The shell, but we didn't equip it and we did that before we need it. We will ultimately use it.
So the economic cost is just the time value of the money, which is a Pretty modest cost. And this is pretty normal for us. It's we actually always want to have Some preposition space to grow into as the market grows. As Brian said, it's 3 years to construct one of these things. So It's economically quite detrimental to get caught short and the cost of having a little bit of extra space is pretty high.
Depreciation doesn't impact gross margin.
Thank you.
Welcome.
The next question comes from Ross Seymore from Deutsche Thanks.
Hi, guys. Thanks for letting me ask a question. I guess the first one is on DCG. Can you give us a little more color on what happened in the 4th quarter, Quarter miss in forecasting still low double digit growth in 2014.
Yes. Let me take that. This is Stacy. So if you look at the trends in the Q4, I think the trends actually reinforce the growth rate among cloud, High performance computing, networking, storage, they all came in consistent with what we thought. Brian Went through a lot of the year on year growth rates there, still very robust growth rate.
So it actually increased our confidence in that. What we Saw very specific to the enterprise was we did return to growth. It was a little bit less growth than what we had thought as we entered the quarter. As we kind of step back and look at what happened there, we think there's 2 elements that hit us. 1 was we had a pretty robust growth rate in Q3.
As we entered Q4, we saw that we had there's more inventory out in the world than we knew when we started the quarter, so that had to be burned off. And then secondly, we saw a tapering off in order patterns across certain customers in certain segments At the end of the quarter, and we think that that was driven by the government shutdown and the uncertainty around the debt ceiling because When you look at the customers in the segments, it's pretty clearly in those segments. We had a range around growth rates For 2014 and the investor meeting, we said 10% to 15%. Based on a slower growth in enterprise in Q4 And maybe a slower recovery in Enterprise over the course of 2014, I'd say we're now at the lower end of that range. So we're more at the 10% range than the 15%
Great. And I guess as my follow on switching gears a little bit to the OpEx side, you guided sequentially flat, But it looks like if you just hold R and D as part of that sequentially flat, for the full year, it seems to imply that R and D as a singular expense Coming down as the year progresses. Is that math correct? And if so, what's driving that decline throughout the year?
Yes, that math is correct. So, I think Q1 will be the high point in terms of quarterly spending. It will come down quarter by quarter. We'll be bringing employment down over the course of the year. And beyond that, as we talked about at the investor meeting, We're going to be making some significant new investments in things like the data center, tablets, low power SoCs, those kinds of things.
So Even beyond the headline number, there's going to be kind of a significant shift in investment over the course of the year. But you have the math right and it's going to be due to just Shifting on projects and bringing down employment over the course of 2014.
The next question comes from Glenn Young from Citi.
All right. Thanks. Brian or Stacy, either one. To what extent could you be misreading the enterprise in the sense that the virtualization curve is probably now over and maybe you don't see the recovery in enterprise server with the economy that one
I think we'd say there is some impact. As Diane showed you, we're showing A long term growth rate in enterprise that's less than what it was 3 years ago. I think you should say there is some impact associated with the virtualization having played out, but that doesn't stop the fact that we think that there's growth in the Enterprise segment. We We've just changed our view for 2014. We think the recovery just plays out a bit slower than we would have thought a quarter ago.
Okay. And then kind of similar question, but on the PC side. To what extent do you think that the Strength you're seeing relative strength you're seeing in PCs today is a function of the software transition at Microsoft and And does it therefore end in April? Or do you think this is a more sustainable recovery?
So as we said in our script that What drove a lot of it was desktop. And we are seeing the mature markets, Enterprise be the strongest with the emerging markets still flat to slightly down. So our view that if you look out from a PC perspective was that we Forecast with a relatively cautious and careful view Looking out, we compared against the 3rd parties. We think we're in line with what 3rd parties have forecasted as well. We some of the contribution to 4th quarter was the XP transition, which is really what you're talking about.
We don't think that was the only thing. As I said, it was most a lot of the growth came from desktop. The desktop was largely enterprise in the mature markets. That really we think has to do with a lot of great form factors that are coming in. All in ones, the great innovation that's coming in there.
We saw some of the highest units of i5 and i7 in the enthusiast area. I think those are some great gaming platforms. So we think there's a lot more to the desktop growth. We also introduced the Haswell based NUC, which is the smallest FormFactor desktop machine that you can have. So it's those kinds of innovations that are driving this desktop growth as much and more Then the software transition.
That's great. Thank you very much.
The next question comes from Stacy Rasgon from Sanford Bernstein.
Hi, guys. Thanks for taking my questions. I want to dig into the full year guidance a little bit. There's something I don't understand. So you just basically took your data center guidance down for 2014 by a little bit.
It doesn't sound like you're taking you're improving your full year PC guidance at all. You're still saying kind of like single digits. And yet you didn't take your full year revenue outlook down. So what's And if there's nothing making up the difference, why didn't you take the full year revenue guidance down?
Yes. I think Stacy you're Assuming a level of precision around approximately flat that doesn't exist. Approximately flat can encompass a little bit up, a little bit down. So if you think about the data center being $10,000,000,000 if we're at the higher end of the range versus the lower end of the range that we put out here, you You changed the full year on a $50 plus 1,000,000,000 business by a few $100,000,000
So is the bias like more to a little bit down versus a little bit up At least more than it was in November?
At this point, you're again, you're assuming a level of precision that I think is inappropriate when you're I think something that will play out over the next 12 months. We had a positive data point on PCs. We had a little bit of a negative data point on one element of the enterprise. Our tablet momentum looks good. So you just kind of look at it and I'd say our view is pretty consistent with what it was back in November.
Yes, but you don't book any revenue, Dave.
Thanks for the question. We're going to move on to the next questioner.
Okay. The next question comes from Christopher Danely from JPMorgan.
Mr. Daimler, you may be on mute. We can't hear you.
Is that better?
Yes, that's better. There you go.
One of these days I got to figure out how
to work my own phone. Yes, technology is tough. Tell me about it. So anyway, my first question is on gross margins. So you gave us the Q1 and the full year guidance.
Can you just talk about How things are supposed to trend after Q1? And then maybe also talk about some of the levers on gross margins up or down?
Sure. Let me I'll anchor it on Q1 and then give you a sense of how I see it playing out over the course of the year since we provided specific guidance Q1, we've guided Q1 at 59%, coming down from Q4. We're at 62% in Q4, so down to 59. The elements there that bring us down, we have about 1.5% down associated with the start of production On Broadwell prior to its qualification for sale, so you've seen this from us in the past that build will be reserved out until we reach the formal qualification date. And then we're about a point down in Q1 as a result of it just being a seasonally lower quarter.
And so again, I think you kind of understand and expect both of those. 60% for the year or so, Algibault would say an improving gross margin over the course of the year. I think when we get into the back half of the year, we have a gross margin that's back into the low 60s. When I think about the headwinds and tailwinds to that, the tailwinds are that we expect that we'll see a falling off of 14 nanometer startup costs. We talked about that at Investor meeting and I think that's consistent with what you'd expect from us.
We see volume and unit costs getting better over the course of the year and reserves will get a bit better as As we progress through the year, again, we have this Broadwell reserve in the Q1. The big offset to that then are the dollars that we're providing In terms of contra revenue dollars for tablets that we also talked about in some depth at the investor meeting, We're not seeing a lot of those in the Q1. They really build over the course of the year. So we have the positives that I outlined and then you'll see that offset as a result of kind of those temporary contra revenue dollars that we're providing to our customers as we take our tablet product Flying kind of broadly through the different OSs and price
points. Great. And for my follow-up, I guess it's kind of on that question. So On the tablet strategy to get to $40,000,000 you're saying it's going to be a 1.5 percentage hit. Let's say you guys get into the second half of the year and you're not quite to the $40,000,000 if it's a pretty significant shortfall.
Would you consider canning that strategy? I guess I'm just wondering what the commitment is if the volumes aren't there, but The cost is there by the end of the year.
Sure. So this isn't a price reduction as the normal price reduction would be. It's not a Where you're just simply reducing it. It's truly a bomb cost equalizer. And remember, a lot of our 40,000,000 tablets in 14 will be based on Baytrail.
Baytrail was Originally designed for atom based PC segment and the upper end tablet. And so it's What we're doing here is doing a BOM cost delta relative to the what the mid and lower end tablets require. And so those are things like, Bachel may require more layers of a printed circuit board for the board itself, More components on the board and tighter power management controls and things like that. We have a whole program To reduce those throughout the year, so that gives us confidence that as we go through the year, the Comcast Delta will shrink. But if the volume didn't show up for some reason and I'm not going to say that that's what's going to happen, but I'm Confident it will.
But if it didn't, it's on a per unit basis. And so the spending on that contra would be reduced Equivalently.
And I'd just add, as Brian said, we're doing a lot of enabling across the industry to take the BOM cost down. And keep in mind, these These are costs at the system level, not at our chip level. And it will vary a lot by SKU. But to give you a sense, for a Baytrail platform, From the beginning of the year to the end of the year, we think that that bomb penalty drops by more than half. And so it just it kind of gets better out in time.
And then when we get to the Broxton generation, we think it's de minimis.
Yes. Both Broxton and Sofia are just specifically designed To eliminate that delta.
Got it. Okay. Thanks a lot guys. That's very helpful.
Thanks, Chris.
The next question comes from Tristan Gerra from Baird.
Hi, good afternoon. If we look at tablets and smartphone, what type of units do you need to reach For that business to start having a material impact in gross margin from a standpoint of higher utilization rates and excluding the contra revenue Packed and offset?
You were asking tablets and phones?
Yes. So just looking at the 40,000,000 units target for this year, what type of volume do you need to get in order for gross margin to stop Appreciating from the rest of the business if you exclude the contra revenue impact.
Yes. It's hard to say. Maybe I'll bridge back to our strategy here. Our strategy is that we're going to use our process technology lead. We'll have leadership products that also are competitive or maybe even leadership in terms of cost.
And I showed some Data at the investor meeting that just kind of showed the die size as we progress from Bay Trail to Buxton to SOFIA And so you can get a sense of the kinds of cost structure that we're going to have. On a per unit basis, I don't think it causes on a percentage basis, yes, I can't I'm not envisioning a situation where it causes the gross margin Percentage to go up, but you can definitely get to a space once we get through these contra revenue enabling dollars where every We sell as accretive on our gross margin dollars per unit. It's utilizing factories that we have in place for PCs. And so it's It's a nice adder at a gross margin dollars per unit standpoint. Okay.
And then a quick follow-up. You talked about Enterprise Desktop being Truong, any color that you can provide in notebooks in terms of whether it tracked in line with expectation and whether was it more driven by consumer or enterprise?
It was pretty much in line with expectations. We didn't see any surprise on the notebook side. We saw overall PC units a little bit higher and that was really desktop. And it was, as Brian said, broad based across desktops. So it was all in ones and Corporate and consumer, everything was just a little stronger on the desktop side.
Great. Thank you.
The next question comes from John Pitzer From Credit Suisse.
Yes. Good afternoon, guys. Congratulations on the solid results. Brian, I guess my first question relative to the seasonal guide for the March quarter, Is there any sort of granularity you can give us between sort of the PC group, the data center group and kind of other IA? And I guess the reason why I'm asking the question is, I get in the absence of knowing just guiding to seasonal makes sense, but you do have Baytrail Android tablets in Q1 that you didn't have in Q4.
And then when you look at availability of In the PC group, you actually have a lot better availability of kind of the SKUs I think people like in Q1 versus Q4, both of which would kind of argue for better seasonality, so maybe if you can give us a little granularity that would be helpful.
Sure. Let me try and Stacy can add some of the financial detail. Part of it is let's go back. It's seasonality of growth from Q4, right? So a stronger Q4.
So it's a good quarter. I don't want to say that just growing in seasonality is not a good thing. Second thing I would say is you're Right. On the PC, we do see a lot of the 2 in ones come in. But also Q1 is just there's not a lot of Events that happen that can drive upsides like holidays and things like that.
Now one of your comments you said we'll start Seeing Baytrail Android tablets, most of the Baytrail Android tablets really start showing up more in Q2 than in Q1. And that's again purely remember we made a shift. Our original program for Bay Trail was All Windows, as we came in through the midpoint of the year, we said let's shift and make it Windows and Android. And so our OEM partners as well are targeting more towards Q2. And it's just when do you go and start putting back in that back The school event, which is the next seasonal place where upsides usually occur.
Yes. The only thing I'd add to that, so I guess I'd say I certainly hope you're right and it's better than seasonal and We have all the ability in the world to respond to that. So that ends up being a good answer. The thing you want to keep in mind as you work through Seasonality over the course of the year is that these contra revenue dollars that we're providing to the customers for tablet enabling That will come off of revenue. So it's a gross margin hit, but it will also be a decrement to revenue while we support them.
So it's not so much a Q2 issue, but as you get into the back half, It's going to be one of the minuses out there.
That's helpful. And then guys just relative to DCG, at the Analyst Day in November, you talked about your expectation for enterprise Kind of being I believe a 7% or 8% type long term grower. I know relative to Glenn's question around virtualization, your answer to that. I guess my question is, Have you taken into account sort of cloud and enterprises kind of offloading infrastructure into the cloud? I know at the Analyst Day, You talked about 2 thirds of cloud growth being consumer and not business.
But if you start to lose dollars in enterprise to cloud, is it kind of a one to one loss? If you lose it in You'll just make it up in cloud? Or how do I think about that dynamic?
I think it's close enough for government If that's how it plays out, it should be dollar for dollar or close enough that you don't care. Yes. One of the phenomenon that we've seen is that we've seen the mix in the cloud actually moving up. So if you look at the ASP impact inside of servers, John, it's more driven by cloud than anything else right now. And so they're buying a richer and richer mix.
And so that's why I think you're probably pretty close if you start to see an offload that way. And utilization rates inside enterprises tend to be pretty high on the kinds of things that they move into the cloud. So I think you're pretty close to 1 to 1.
Thanks, guys. Helpful.
The next question comes from Alex Ganna from JMP Securities.
Thanks so very much for taking my question. I was wondering if you could talk about how you see Asia specifically and what's going on for you with
Like we said in Q4, we saw Asia continue to be soft. We've Built in a seasonal growth, we don't expect anything big to shift there. We see Asia continuing to they'll have that same seasonal Both as well. The forecast stands. We don't see anything different occurring there, so to speak.
Is there any evidence within your build and your ODM build into the server market I know some of that's coming back to service data center, but what about the opportunity in Asia for them to become a stronger data center enterprise
Certainly. I mean, if you look at one of the places we look at for data center growth and we are seeing it For both but I mean, it's across enterprise cloud is growing very well. A lot of the cloud Growth is driven out of Asia. We absolutely see Asia as a growth area for the data center in general.
Yeah. Exactly. And I would just say on the client side, we think what we're seeing in Asia is just that the tablet Penetration rate increase that's offset by a couple of years from what we saw in mature markets. And so that's why I think we're seeing some stabilization and improvement in mature markets that's ahead of emerging We've just reached saturation point on tablet penetration and in the emerging markets it's still increasing. It's much more of a client phenomenon than a data center phenomenon.
Would you expect the lag in Asia to be driven more by base trail later on in the year or has well?
Hey, Alex, I appreciate the question, but we're trying to get it there for everybody. Okay. Thank you. Thank you. That's helpful.
The next question comes from Vivek Arya from Bank of America.
Thanks for taking my question. So first, on the smartphone or tablet space, I think it is True that Intel has a manufacturing lead. But do you think your cost reduction efforts and then the Moore's Law advantages Ever progress faster than the ASP declines in the space? In other words, do you think Intel can be sustainably profitable in the mobile space, It is
maturing. Yes. We absolutely do. You saw at the Investor Meeting Products like Sofia, which really are going to be put on to 14 nanometer are fully integrated all the way through with a 3 gs option or an LTE option and that LTE is with carrier aggregation. Those kinds of products we believe are very, very Cost competitive, in fact, leading from a cost position.
In addition, we don't talk a lot about, but We are already in that low cost Asia market. We are in Shenzhen. We are Working with ODMs there, that's actually where a lot of the innovations coming out of for some of these cost reductions On tablets and where we're getting the cost reduction ideas. So we're in that market now. We sold out of that Shenzhen low cost market in Q4.
We'll continue through it through 2014. And with products like Sofia on leading edge technology, we're very comfortable that we can get into those very low price points.
Thanks, Ryan. And as for my follow-up, there seems to be this race to provide 64 bit capability And application processes and I think you guys have always had 64 bit support with ATOM like, in fact all your products. So So the question is, what do you think is the value proposition of 64 bit? And how can you leverage your 64 bit capabilities to win market share in mobile?
Sure. You're right. All of our products have always been 64 bit, Including Adam. And so OEMs who build with our products now can already go out and start to utilize 64 bit. We're out there working with the OSes, all of the OSes and OEMs to go enable that.
The real usages and the values are going to be in those high compute areas, things like video, things like media transfer, media manipulation, All the classic things around computing that you saw drive the compute cycles on PC and people are doing more and more with tablets and phones Are going to be the same things that drive 64 bit utilization on these mobile devices. I think you'll also see it in Security, all of those things are going to drive a desire for 64 bit.
Great. Thank you.
The next question comes from Mike McConnell from Pacific Crest.
Thanks. I wanted to ask about, again, going back to Enterprise and DCG. Since you said that some of the fall off late in the quarter was due to some of the government And now that the debt deal has been reached, have you gotten any feedback from some of these enterprise customers Is that they're feeling more comfortable now to start to re spend?
We'll watch it over the Q1. I think the headline here is that the first half of the year we saw an enterprise market that was declining. When we got into the back half of the year, it was growing. It was It's growing a little less fast than we thought and recovery was a little less fast than we thought. My expectation is we'll see that segment kind of pop back To the normal rate, I also think that we were just a bit ahead of ourselves in terms of how fast the enterprise market was going Was going to recover and grow.
So we have a little bit more of a cautious view of that as we progress through 2014. So I guess the short answer is yes, I'd expect that piece to come back. I still believe we'll be at the lower end of the guidance. We probably were just a little overheated in Q4.
I understand. And then my follow-up would be just Stacy, Can you remind us about linearity in DCG? I guess, would we have to wait till the second half of twenty fourteen to kind of see the reacceleration? Or Or do you think we could still see growth in the first half of the year? Thanks.
No, I think you'll see year on year growth rates. I mean, remember DCG is a the order pattern particularly with some of these big cloud customers can be very lumpy. But When you step back and look at it on a year on year basis, I think we'll see year on year growth rates just kind of progress through the year.
Sequentially though as well? What does that say?
Sequentially, it will be more based on kind of normal seasonality. But again, for DCG, Mike, My litmus test is always year on year growth rates tends to be a more meaningful indicator.
Thanks, Mike. And operator, we'll go ahead and take 2 more questions.
The next question comes from Hans Mosesmann from Raymond James.
Thank you for letting me ask a question. Brian, real simple, if you can, can you split out The types of servers that you sent or shipped in the quarter via enterprise, networking, if you can provide that level of granularity? Thanks.
There are splits. Yes. We don't provide that level of granularity. But if you go back to Brian's prepared this is Stacy. If you go back to Brian's prepared remarks, what You heard a lot of data on year on year growth rates across Cloud, networking, high performance computing and then I'm giving you for the enterprise piece, It was growth.
It was just a lower level of growth than we thought. So it's pretty if you go back to the investor meeting stuff and then take what Brian showed you, what you'll see is for All those other segments was very consistent with how we modeled it, enterprise growth, but a little bit less growth.
Okay. And then as
a follow-up, The Broadwell SOC, I mean, still second half of twenty fourteen?
Yes. I said that We've made great progress on our 14 nanometer yields and we were actually very happy with the results that we got out of Q4 and we're squarely on target For our second half launch and for, as Stacy said, Starting production in Q1. Okay.
Thanks Hans.
Thanks Hans. And operator, if you can go ahead and introduce our last question.
The final question comes from Jim Covello from Goldman Sachs.
Thank you so much guys. I appreciate it. I I know that on the piece of the pickup in desktops, you had said it wasn't all corporate refresh, but obviously some of it was. Is there any chance that Enterprise Just had a fixed budget and so more of it went to the corporate refresh in the Q4. And so, they had a little bit less to spend on the data center And that could account for some of the delta there?
We don't have a signal that suggests that Jim. From what we've heard from the OEMs and the customers is more around, like Stacy said, a little bit of inventory coming into Q3 3 and into Q4 and then the government shutdown. And if you looked at the order pattern, it really kind of followed that From what we could tell on the from our position as well.
And I'd just add to that. As Brian said earlier, we had record Shipments in the desktop on the Core i7, that's we know that SKU is not an enterprise SKU at all. That's a consumer SKU. Our data as we look across was consumer was strong, all in ones were strong. So a lot of i7 was strong.
A lot of things that we know don't go into enterprise So I don't think that was the driver of what happened in the client side of enterprise and we don't have any data points that would suggest that was what happened on the server side of enterprise.
Yes. If I could just quickly on the follow-up on the tablet. Could you give us some perspective On the design wins that are not being supported by the contra revenue, in other words, sort of maybe a Split between design win activity that is supported by contra revenue versus ones that aren't?
Yes. I mean, We can't go into specifics of each one.
No, sure. Maybe just percentages or something. But
I'd say the majority of the projects that we have in 2014 use some level of contra revenue to bring their BOMs their bill of materials, I want to make sure we don't use our acronyms everywhere. They're bill of materials to parity. Okay. And so it really is very SKU by SKU dependent. It's not a fixed number out there.
We work with each OEM and that's how I'm comfortable that we're going to work this out over the next year or so. We work with each OEM Depending on what are they targeting a high end SKU, a mid range SKU, a low level SKU, what type of display and graphics and all of those things they want to put in that system, We have a delta in Baum that we're working out and so we go and work with them on that. And it's literally at that level SKU by SKU.
Terrific. Very helpful. Thank you. Thanks, Jim. And thank
you all for joining us today. Jamie, please go ahead and wrap up the call.
Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.