Intel posted its second quarter results last night, and the big-picture results are excellent. PC client and enterprise sales volume both improved dramatically, the company’s gross margin is up just over 6% year-on-year, and its net income surged a full 40% to $2.8 billion for the quarter. Buried in the midst of the strong PC story is a surprising bit of additional data — Intel’s Mobile and Communications Group lost $1.1 billion in just the past quarter and just over $2 billion so far this year.

It’s one thing to hear Intel executives talk about shipping hardware “contra revenue” (i.e. it makes a loss on every chip sold), but another thing to see the impact of those policies on the bottom line. In today’s short-term focused market, Intel is taking a heck of a risk on its nascent tablet and mobile business and hoping it pays off in the long term. Intel’s net revenue in the Mobile and Communications Group was just $51 million, down from $292 million over the same period in 2013. Is the company just throwing good money after bad?

Intel’s long-term plan

After listening to the conference call today, it’s clear that Intel is committed to this strategy, even though it’s been hit with a few other setbacks along the way. The first thing to understand is that Intel is reporting net revenue for the segment — meaning revenue after all discounts, rebates, returns, and other considerations have been calculated.

The reason it’s important to keep that in mind is because normally we think of revenue as being tied to sales volume. If a company sells widgets for $50 each and reports $500 million in income, it’s easy to ballpark how many widgets it may have sold. With Intel shipping its tablet parts contra-revenue, this relationship is much more difficult to predict. Intel’s $51 million in net revenue doesn’t mean the company only sold $51 million of Bay Trail hardware — it means it only recognized $51 million of net revenue after other costs were accounted for.

One further setback Intel acknowledged on the call is that its own XMM 7260 modem has apparently once again run into ramp trouble. It initially expected that the product would qualify in Q2 for Q3 production, but now predicts an early Q3 qualification cycle with production ramping up at the end of the year. Executives also acknowledged that the market is pivoting hard away from 2G and 3G solutions — a tacit admission that its older silicon may face a steep decline in sales.

Oddly enough, in almost the same breath, Intel still affirmed its commitment to its low-end SoFIA processor, which is an Atom core built at TSMC with an integrated 3G radio. When asked how long contra-revenue would continue to drag on company profits, CEO Brian Krzanich identified SoFIA as a significant milestone that would help Intel reduce its contra-revenue expense — without acknowledging that SoFIA is a 3G-only part (at least, for now). Intel continues to affirm that its modem business is vital to its long-term plans, even going so far as to say that failing to launch its own modem would leave it locked out of “a huge part” of the market just 3-4 years down the line. The company clearly believes that every SoC, from fuel pumps to high-end laptops, will need at least a basic modem solution.

What about Skylake, 10nm, and future product launches?

Several analysts asked whether Intel’s Broadwell delay would impact the development of either 10nm or Skylake production. Krzanich responded that Intel was sticking to Skylake as on track for a 2015 launch, with 10nm production starting in 2015 and volume production in 2016. Intel’s Core M is still on schedule and slated for later this year. Krzanich didn’t waffle, but he left himself a bit of wiggle room, noting that Intel does evaluate its roadmaps on an ongoing basis, and implying that if Intel did delay a launch or rollout it might do so at the behest of OEM partners. I’m still dubious on whether or not Intel can launch Broadwell, ship Skylake, and start its 10nm engines all within 12 months — as I’ve said before, building modern foundries and nodes is hard, period, regardless of who is doing the work or even how much money you can afford to throw at it.

Will Intel’s tremendous investments in mobile start finally paying off in 2015? That’s not clear. The company hopes SoFIA will reduce its need for contra revenue, but didn’t talk about ending the practice at any specific date.

One tidbit dropped on the call is that Intel shipped 5 million tablets in Q1 and 10 million in Q2. It expects to hit its 40 million target for all of 2014, which suggests that these losses will increase in the back half of the year and possibly break the $4 billion mark. That fact, more than any other, drives home just how lopsided the Intel/AMD comparison really is. Intel’s mobile division alone has likely lost more than 2x the revenue AMD’s CPU and APU business has earned in 2014 — but Intel still managed to log a total of $4.7 billion in net income over the same period.