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Intel beats Q3 forecast but still faces tough conditions

Posted: 18 Oct 2012 ?? ?Print Version ?Bookmark and Share

Keywords:Ultrabooks? processor? forecast? PC business? Windows 8?

Intel Corp., has reported third quarter sales that beat the revised target it issued last month. The surprising result is due to a sudden pick in PC processor billings in September compared with earlier in the quarter.

However, despite beating the revised target, Intel executives stated that it continues to grapple with difficult business conditions brought on by tough macroeconomic conditions, soft PC demand and a reduction in microprocessor inventories across the PC supply chain. The company forecasts minimal growth for the fourth quarter and also cut its capital spending estimate for the year.

Paul Otellini, Intel's president and CEO, said in a conference call with analysts following the quarterly report that the company expects the PC business to grow at about half of its normal seasonal rate in the fourth quarter. "Customers are taking a cautious inventory approach in the face of economic uncertainty and the timing of the Windows 8 launch, Otellini said.

Otellini said the uptick in PC-related billings towards the end of the quarter came as customers

began their system production in advance of the Oct. 26 launch of Microsoft's Windows 8 operating system.

Executives said Intel was reducing its capacity utilisation in an effort to burn off ballooning inventory, which grew by $400 million in the third quarter. The company reduced its capital spending forecast for 2012 to $11.3 billion from $12.5 billion and said it would re-direct space and equipment devoted to older technologies to manufacture 14-nm chips.

Intelreported third quarter sales of $13.5 billion, roughly flat compared with the second quarter and down 5 per cent compared with the third quarter of 2011. The No. 1 chip vendor reported a net income for the quarter of $3 billion, or 58 cents per share, up 5 per cent from the second quarter and down 14 per cent compared to the year-ago quarter.

Intel's third quarter sales came in above consensus analysts' expectations of about $13.2 billion, according to Yahoo Finance. Last month, Intel cut its sales target for the third quarter on weak PC sales, saying it expected sales to be about $13.2 billion.

High hopes for Ultrabooks
Last week, market research firm IHS iSuppli forecast that PC sales would contract in 2012 for the first time since 2001. The PC slump is blamed in part on changing consumer preferences for new types of computers like smartphones and tablets that cost less and emphasise convenience and mobility.

Intel is pinning its hopes for stemming this tide largely on Ultrabooks and other types of ultrathin, low-power PCs that the chip company and its PC OEM customers will appeal to consumers by offering a blend of some of the capabilities popular in tablets with the performance advantage of a traditional PC.

"I don't think the tablet as we've seen it evolve over the last several years is the end state of computing," Otellini said Tuesday. He predicted that new innovations from OEMs would further and enhance and improve on the types of computing devices available.

"What I can't predict is what form factor is going to win here," Otellini said, adding that he believes devices like Ultrabooks that offer "the best of both worlds" will be some of the highest volume products. "But we won't know for 12 months," he said.

Otellini said Intel expects OEMs to bring out more than 140 Ultrabooks based on Intel's Core microprocessor, including more than 40 with touchscreen technology. Many will hit the $699 price point that Otellini has previously said would make Ultrabooks more appealing to mainstream consumers, he said.

IHS recently cut its forecast for Ultrabook sales in 2012 and 2013, but said it projects strong growth in Ultrabooks over the next five years.

Intel's third quarter sales ended up coming close to the firm's original target for the quarter, about $13.6 billion. Advanced Micro Devices Inc., Intel's chief competitor in the PC processor space, warned last week that preliminary results indicate its third quarter sales came in lower than expected, declining about 10 per cent sequentially.

For the fourth quarter, Intel said it expects sales to be between $13.1 billion and $14.1 billion, which would represent a 1 per cent sequential increase at the midpoint. Stacy Smith, Intel's chief financial officer, said the slight increase in Intel's fourth quarter target reflects the caution Intel is seeing in customer order patterns amid concerns about the global economy, softness in mature markets and a slowing demand from enterprises.

Revenue from Intel's PC client group was $8.6 billion in the third quarter, down 1 per cent from the second quarter and down 8 per cent from the third quarter of 2011. The company's data centre group had revenue of $2.7 billion, down 5 per cent from the second quarter but up 6 per cent compared to the third quarter of 2011.

- Dylan McGrath
??EE Times

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