Let me know what you think of these and how your business might be affected by some of these trends. (See:
- "The Global PC landscape is being reshaped." This is a direct quote from Paul Otellini, Intel's president and CEO, but I couldn't have put it better. Several factors are affecting how the PC market will evolve over the next few years, including the growing role of tablets and increased functionalities being added to smartphones, e-readers, industrial devices, and even automotive systems. However, Otellini was referring here to the shifting demand demography for the PC market, where sales are declining in developed economies but soaring in emerging nations -- this is occurring at both consumer and enterprise levels. "Emerging markets now represent 2 of the top 3 consumption PC markets in the world," according to Otellini. "China is now the number one PC consumption market in the world, while Brazil has become number 3."
- A new form-factor war is pitching PCs against tablets/smartphones. Intel's strong third quarter performance still masks one uncomfortable truth, and this is that tablets are likely to eventually sharply erode sales of notebooks and desktop computers. Many large businesses and retailers are replacing clunky PCs with tablets and smartphones where such a switch makes sense, and this will eat into microprocessor demand. Apple Inc. (Nasdaq: AAPL) CEO Timothy Cook in a conference call discussing the company's latest results also on Tuesday identified a growing list of companies he said are finding "innovative new ways" of using the iPad. I will write more about this in a separate blog.
In response, Intel too is encouraging OEMs to roll out a newer generation of notebooks called "ultrabooks" that "offer compelling, thin and light form factors with instant on capability, enhanced security and excellent battery life starting at less than $1,000," Otellini said. Ultrabooks may help microprocessor makers like Intel deflect some of the effects of the tablet and smartphone invasion, but they won't completely avoid the impact.
- A slowdown is imminent. While still robust, Intel's outlook for the fourth quarter is slightly below seasonal pattern, according to company executives. Intel said it sees revenue coming in at about $14.7 billion for the fourth quarter, "plus or minus $500 million." CFO Stacy Smith noted in a statement that the "mid-point of this range is up 28 percent from a year ago and up 3 percent from the third quarter, which is below our normal seasonal range." A similarly softer outlook is expected for many other electronics companies, but Intel's forecast is the clearest sign yet that the looming slowdown might not translate into a full-blown recession.
- Some companies are hiring. It was surprising news to me, but Intel is hiring, and so are many other companies in the electronics sector. So far in 2011, Intel has added 17,000 people to its payroll, and about a quarter of them were added in the third quarter alone, although it has slowed "hiring for the rest of this year," according to Smith. Many of the positions added were in research and development.
- Inventory is under control. I don't know if this is industry wide, but semiconductor companies are more tightly managing inventories. Intel's inventories increased on a year-over-year basis to $4 billion in the third quarter and were unchanged from the preceding quarter. I suspect inventories will rise in the fourth quarter and perhaps in the first few months of 2012 as demand softens further, but for now, they are at acceptable levels, not just at Intel but across the supply chain.
- Industry coffers are swollen. It's hard to find a weak spot on the balance sheet of many leading electronics companies nowadays. Intel's cash investments surged more than $3.7 billion in the third quarter, rising to $15.2 billion, but the company is not alone. Apple reported more than $80 billion in cash and short- and long-term investments, and I expect other electronics manufacturers also have huge amounts of cash on their balance sheets. In addition, these companies are taking advantage of low interest rates and favorable lending conditions -- for creditworthy enterprises -- to borrow money for debt reduction or stock buyback programs.
If only we could somehow dispel the cloud of uncertainty around the rest of the global economy.