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How Video Games Saved Christmas for Intel

Milan Games Week 2016Milan Games Week 2016
The Republic of Gamers stand during the Milan Games Week 2016 on October 14, 2016 in Milan, Italy. Photo credit: Rosdiana Ciaravolo/Getty Images

The rise of computer video gaming as a spectator sport was one of the hidden factors that helped Intel beat expectations over the holiday shopping season. As the popularity of e-sports continues to rise—particularly among millennials—it may help fuel a resurgence in the chipmaker’s recently flailing PC division.

Last May, analysts weren’t quite sure what to make of a new line of gaming-oriented processors from Intel. The “Extreme Edition” Broadwell-E chips emphasized multiple computing engines or cores–as many as 10–over the fastest possible frequency speeds. The prices at the high end—close to $2,000 a chip—seemed staggering.

Typically gamers would just prefer faster clock speeds to hasten the calculating needed to make high-end games run smoothly. The obvious kinds of computing jobs in video games that benefit from processing many simple tasks at the same time like redrawing the objects on screen 60 or more times a second, and which could get a boost from using a 10-core chip, were usually shunted over to a separate graphics card inside a PC made by Advanced Micro Devices (AMD) or Nvidia (NVDA) anyways.

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But what many didn’t appreciate was that more and more gamers weren’t just using their PCs to play the games anymore. They also wanted to record the action in high-definition, edit the resulting videos into punchier clips, and upload them to web sites like YouTube (GOOGL) and And playing a game while recording a game—not to mention processing and editing large video files—is exactly the kind of task that a 10-core chip is well suited to handle.

As a result, holiday shoppers looking at gaming PCs opted for the most processing power they could afford. PC maker Digital Storm’s “Aura Ultimate” model dazzled with all of its components hidden in the back of a 34-inch curved, ultra-high-definition screen instead of the usual separate box. Including the 10-core Broadwell-E chip, the unit sold for $5,000. Overall, the number of sales of top-end PC desktop systems for gaming jumped 8% in 2016 after falling 13% the year before, according to market tracker Jon Peddie Research.

On Thursday, Intel (INTC) reported sales of $16.4 billion, 4% more than analysts had expected and 10% above last year’s fourth quarter. Even with the ever shrinking overall number of PCs sold, down another 6% in 2016, almost the entire surprise excess of sales at Intel came from over-performance of the PC division. The much-touted data center chip unit actually missed analysts’ sales forecasts. The news may have been extra-surprising because Intel had warned after its third quarter results showed surprising PC resilience that it didn’t expect the trend to continue.

As noted, Intel didn’t sell more PC chips than last year, however, it sold 7% fewer. The key was the chips it did sell were more expensive, including record sales of its top performing i7 designated chips. Revenue of $9.1 billion was half a billion dollars more than analysts expected for the unit by itself.

The jump came from the “mix shift,” as CEO Brian Krzanich explained to analysts. “Our customers buying up 10-core systems far and away exceeded our original sales forecast–some people are out there buying 10-core gaming systems,” the CEO added sounding almost incredulous himself.

And that incredulity led Intel to tamp down expectations for PCs in 2017. The company forecast that overall it would increase revenue only in the low single-digit percentage points, and only after excluding 2016 sales of a software security business that is being sold off shortly.

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Krzanich and his team were still emphasizing the growth plays popular with the analysts–chips for servers in cloud data centers; chips for smart, connected devices in the Internet of things category; and reprogrammable chips that can be used for machine learning and artificial intelligence tasks.

Those high spending gamers? Not so much.

“We’ve factored a little bit of caution into that,” the CEO said, explaining that the PC market “is starting to get better, but I don’t think we’re back to zero unit or positive unit (growth). What we’ve really focused on is how do you make money, how do you sell up.”