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Monday, October 22, 2012

Intel’s Outlook Fails To Inspire Hopes For PC Recovery

Intel Corp's weak outlook for fourth-quarter revenue and margins
dispelled lingering hopes for a revival in PC demand towards the end
of the year, pushing its shares 2 per cent lower.
Intel, along with rival Advanced Micro Devices, had previously warned
of weak demand for PCs, hit by a troubled global economy and the
growing popularity of tablets like Apple Inc's iPad, once dismissed as
a niche device but now leading a fundamental shift in consumer
Intel's corporate-focused server and data center business has helped
offset weak PC sales in recent quarters, but in the third quarter,
revenue from that division also disappointed as enterprises bought
fewer servers.

"You have to remember, data center has been the rock we've all leaned
on," said Patrick Wang, an analyst at Evercore Partners. "It's a
reflection of enterprises and companies rationalizing their year-end
spend." With economic growth slowing in China and struggling in Europe
and the United States, global PC shipments are expected by analysts to
decline slightly this year, the first annual drop since 2001.
Intel said the data center business, which sells server chips and
other equipment to companies and governments, grew 6 per cent year
over year in the third quarter, although it was down 5 percent from
the prior quarter.
Profitability will also take a hit, as Intel idles excess capacity at
its plants in an effort to reduce inventories of its processors. It
foresees fourth-quarter gross margins of 57 per cent, or 58 per cent
on a non-GAAP basis, both plus or minus a couple of percentage points.
Analysts on average expected gross margins of about 62 percent for the
current quarter.
Chief Financial Officer Stacy Smith said about two-thirds of the
anticipated decline in margins will come from excess capacity charges.
Intel is also running its factories at less than 50 percent of their
capacity, redirecting unused space and equipment to be used on more
cutting-edge production lines still being built.
To inject new life into PCs, Intel has been promoting a new category
of thin, "Ultrabook" laptops with touch screens enabled by Microsoft's
upcoming Windows 8. But the Ultrabooks launched so far have been
criticized as too expensive, and manufacturers have shipped fewer than
"I absolutely expect growth in the PC segment, and I firmly believe
that the level of innovation we're seeing in Ultrabooks is going to be
one of the catalysts," Smith told Reuters in a telephone interview.
"I'm not going to put a number out there -but I expect it to grow."
Shares of Intel fell to $22.35 in after hours trade, after closing up
2.85 per cent at $22.35.
Microsoft as savior?
The world's leading chipmaker is used to being king of the personal
computer market, particularly through its historic "Wintel" alliance
with Microsoft Corp, which led to breathtakingly high profit margins
and an 80 percent market share.
But in the fast-growing and cut-throat mobile world, Intel is
struggling – its market share is less than 1 per cent of smartphones,
trailing Qualcomm Inc, Samsung Electronics Co Ltd, ARM Holdings Plc
and others.
That leaves some investors, already concerned about a lackluster
global economy, asking if Intel's invincibility has come to an end,
and whether its profit and revenue growth potential may come back down
to earth.
The PC industry has been banking on Microsoft's launch of Windows 8
later in October to breathe new life into laptops and slow the trend
of consumers buying smartphones and tablets instead of PCs. But there
has been little sign of a significant bump in PC manufacturing or
shipments ahead of the launch, at least in the short-term, analysts
Intel estimated fourth-quarter revenue of $13.6 billion, plus or minus
$500 million. Analysts expected $13.74 billion for the current
In the third quarter, Intel's revenue was $13.5 billion, compared with
$14.2 billion a year earlier. Analysts had expected $13.23 billion in
revenue for the third quarter, according to Thomson Reuters.


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