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Intel's success signals a 'refresh' for tech industry

Chip maker is a bellwether for the tech industry and for the U.S. economy in general

July 19, 2010 06:00 AM ET

Computerworld - When Intel Corp. posted its best quarter ever this past week, industry watchers noted that the good news extends beyond the chip maker and touches on the high-tech industry and possibly the U.S. economy.

Intel, on the strength of strong server chip sales, reported hefty earnings for the second quarter of fiscal 2010. The chip maker reported net income of $2.9 billion for the quarter ended June 26. That is a turnaround from the $398 million loss the company reported in the same quarter a year ago.

The results topped even Intel's own expectations, and its gross margins came in at 67%, passing Wall Street's expectations of 64.1%.

And that, according to various analysts, can only be good news for the tech sector and the economy at large.

"We appear to be at the front end of what could be a strong refresh, which is very good for the technology segment in general," said Rob Enderle, an analyst with the Enderle Group. "This reflects a rising tide, which could raise all boats. Intel is a bellwether for the technology segment. The entire economy is based on things other than technology though, so we need to see other segments, and hiring in general, improve as well. But this is one of the strongest indicators that things could be improving."

Industry analyst firms have been forecasting strong microprocessor and PC sales for 2010.

IDC analysts last month said they expect nearly 20% growth in global PC sales this year. And in January, IDC predicted the PC chip market was on its way back after the dark days of the recession.

The uptick in expectations is linked to an easing of economic troubles, coupled with renewed consumer and corporate buying to give the PC industry a much-needed boost. While the once-growing netbook market is slowing, there's been renewed vigor in the desktop market, with that segment of the industry showing its first yearly growth since the second quarter of 2008.

Intel's record-breaking second-quarter numbers are the latest indication that the chip industry may be pulling itself out of the economic doldrums.

"The demand environment for PC processors has improved because enterprises are opening up IT spending in servers and corporate clients, particularly notebooks," said Shane Rau, an IDC analyst. "Intel is the biggest semiconductor company, and semiconductors are in so many devices that people buy now, so there's a strong tie to the GDP."

Last October, Intel CEO Paul Otellini said companies that had held tight to purse strings during the worst of the recession would have to relax their grip so they could replace aging desktops, laptops and servers. According to Otellini, the economy had already hit bottom, and corporate executives would soon have to start spending again.



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