Intel Predicts Rebound Despite Ongoing PC Sales Pain

Intel’s latest financial results continue to bear grim testimony to the battering the chip giant has received from the contracting PC market in the first quarter.

However executives are predicting an uptick in business in the second half of the year as new systems armed with the chip maker’s upcoming “Haswell” processor hit the market, bringing with them greater capabilities and lower prices.

PC Pain

CEO Paul Otellini – giving his last quarterly earnings call before he retires at the end of next month – and CFO Stacy Smith, speaking to analysts and journalists on a conference call 16 April, spoke about upcoming Ultrabooks that will run as low as $499 (£325) to $599 (£390), while offering a range of features such as touch.

They also spoke about what they called a “market of computing,” where the distinction between devices such as notebooks, tablets, Ultrabooks and convertible systems disappear, and with its growing range of chip offerings – from Haswell to the upcoming quad-core “Bay Trail” Atom system-on-a-chip (SoC) – Intel will have products for every device, including smartphones. Bay Trail will enable system makers to roll out high-performance notebooks in the $300 (£195) to $400 (£260) range, according to Smith.

“We can embrace this broad market for computing,” and respond to wherever the demand is coming from, Smith said on the call. “We’ll be participating across this broad range of computing devices as we get into the last half of the year.”

PC sales continued to fall over the past couple of years as consumers and business users turn their attention – and computing dollars – to mobile devices, such as tablets and smartphones. Analysts at both IDC and Gartner on 10 April said PC shipments continued to fall in the first quarter, dropping by as much as 13.9 percent compared with the same period last year. Vendors with deep links into the PC market – such as system makers Dell and Hewlett-Packard – are being hobbled even as they look to shift their focus to the enterprise tech space.

Intel Recovery

Neither analyst firm included tablets in their PC projections, though Intel executives talked about the line between PCs and tablets evaporating. Intel’s Client Group generated $8 billion (£5.2bn) in revenue, a 6 percent drop from the first quarter of 2012. Despite this, Otellini and Smith said they expect to see PC chip revenues grow in the low single digits in the second half of 2013, helped by technology such as Haswell and Bay Trail, features like touch and lower pricing.

Intel chips dominate the PC market, but the company is trying to gain inroads into the booming smartphone and tablet, where most devices run on chips designed by ARM and made by such vendors as Samsung and Qualcomm. Otellini said the company expects more tablets – some running Microsoft’s Windows 8 operating system, others Google’s Android – powered by Intel chips to come onto the market this year, and added that that the company is still gaining design wins in the smartphone space.

Stephen Belanger, an analyst with Technology Business Research (TBR), said in a research note that chips such as Bay Trail, “Clover Trail+” and Haswell will aid Intel in its competition with ARM.

“However, sales of the next generation of Intel-powered PCs will be threatened by weak demand and uncertainty surrounding Windows 8 adoption,” he added.

Depressed Financials

Overall, in the first quarter, Intel saw revenues drop 2.5 percent over the same period last year, to $12.58 billion (£8.2bn), and income drop to $2.05 billion (£1.3bn), from $2.74 billion (£1.8bn) in 2012. The company is projecting revenues for the second quarter to come in between $12.4 billion (£8bn) and $13.4 billion (£8.7bn).

While the vendor’s PC chip business continued to struggle, Intel’s Data Center Group saw revenues jump 7.5 percent, to $2.6 billion (£1.7bn). The earnings announcement came a week after Intel unveiled new data centre chips at the Intel Developer Forum in Beijing, including “Avoton,” an Atom SoC aimed at low-power microservers, and the Xeon E5 “Ivy Bridge-EP” and Xeon E7 “Ivy Bridge-EX” processors for traditional servers.

The new chips represent an effort undertaken during Otellini’s tenure to expand the reach of its silicon technology beyond just PCs and servers and into a wider range of systems, from microservers, high-end servers and mobile devices to embedded systems, storage products and networking.

“We compete wherever there is computing,” Otellini said.

Otellini, who has spent more than 40 years with Intel, including the last eight as CEO, is due to retire next month. He announced his retirement as the company’s fifth CEO in November 2012, and the company has yet to name a successor, with speculation ranging from a number of candidates inside Intel to several outside the company, such as ex-Intel executive and current VMware CEO Pat Gelsinger.

An Intel spokesman said during the earnings call that the search for Otellini’s replacement was on track, and plans were still in place to name the next CEO before the end of May.

TBR analyst Belanger said the next CEO will play a key role in determining how the company does in its efforts to extend the reach of its technology.

“Intel’s choice for its new CEO will establish the company’s long-term direction, and TBR believes there is a strong chance the new company leader will have a background in mobility, increasing the possibility a new CEO will come from outside of the company for the first time in its history,” he wrote. “In the short term, customers will delay purchasing while there is significant uncertainty surrounding Intel’s long-term direction.”

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Originally published on eWeek.