Intel must fend off trouble from sluggish PC market

Computerworld - With Intel reporting a year-over-year drop in revenue and profit for its third quarter, industry analysts say the company isn't in trouble but it needs to ward it off -- and now.

Late on Tuesday, Intel execs blamed a tough global economy and the rise of the tablet for a tough Q3 report. The company reported that profit for the quarter ending Sept. 29 came in at $2.97 billion, compared to $3.47 billion in the same quarter in 2011.

The company's revenue, coming in just above analyst expectations, hit $13.5 billion for the third quarter. That too was down from the same period last year, which saw revenue of $14.2 billion.

Looking ahead to the company's fourth quarter, Intel CEO Paul Otellini said during a teleconference that he expects to see half of their normal seasonal growth.

"During the last month, I've met with all of our major customers," he added. "While the market remains tough, I am encouraged to see great innovation... I'm excited about new products and the capabilities they bring to consumers and to the enterprise."

Intel is looking at slowing PC growth, noted Dan Olds, an analyst with The Gabriel Consulting Group. However that's not surprising considering the sluggish worldwide economy and a PC market being battered by buyers' growing infatuation with smartphones and tablets like Apple's iPad.

"Businesses are keeping laptops longer," said Olds. "The refresh cycle with companies is being lengthened and you don't see consumers turning over their stuff as often... [Tablets] are new and sexy so people will buy them. They will buy another PC, but just not yet."

Patrick Moorhead, an analyst with Moor Insights & Strategy, said Intel isn't in any trouble right now but the possibility of trouble looms ahead.

"The challenges for Intel are in the future and revolve around demand returning for the PC and enterprise server market," he said. "The PC market is grim at this point, but the industry is entering a phase where there is a ton of PC innovation. It really is too early to judge what happened in the last two quarters and transpose it on to the next two quarters."

Charles King, an analyst with Pund-IT, said considering all the pressures on Intel right now -- brutal competition, falling margins and upstart mobile technologies -- Intel actually has been executing about as well as circumstances allow.

The company, however, needs to focus on coming out of this period in a strong position and not sinking deeper into troubled waters, he said. "The company certainly needs to do better in some areas, particularly mobile devices including tablets and smart phones, but I expect to see an increasing number of Intel-based products in those areas in coming months."

Olds noted that Intel needs to push through this tough period to keep it from falling behind further. "The PC market reeks right now. There's no other way to put it," Old said. "Intel is not in trouble now but they need to focus on where trouble could come from."

"The trouble isn't right here immediately but people are making choices to buy tablets instead of PCs. It doesn't mean they won't buy PCs again. They probably will. But Intel needs to be concerned about erosion and future competition, stiff competition," he said.

So what does Intel need to do?

tThe analysts generally agreed that it needs to lower its margins, push lower-priced ultrabooks and continue to be innovative. Ottelini said Tuesday that laptops and desktops with Intel's next-generation Core processor, code-named Haswell, will be available in the first half of next year.

"I think that there's a significant amount of pent-up demand in terms of business refreshes and consumers but there's just too much economic uncertainty right now," said Olds. "Best case, I'd say, is that it's three quarters away, maybe two, before we see a solid upswing."

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at  @sgaudin, on Google+ or subscribe to Sharon's RSS feed . Her email address is sgaudin@computerworld.com.

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