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Six Takeaways From Intel’s Q3 Results

After reviewing the latest quarterly results from industry bellwether {complink 2657|Intel Corp.} and poring through comments by executives of the company during their conference call with analysts, I pulled out additional takeaways that I believe provide a clear picture of current market conditions and which will drive future purchases by enterprises and consumers.

Let me know what you think of these and how your business might be affected by some of these trends. (See: Intel Beats Q3 Forecast, Shares Soar.)

  1. “The Global PC landscape is being reshaped.”
  2. 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.”

  3. A new form-factor war is pitching PCs against tablets/smartphones.
  4. 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. {complink 379|Apple Inc.} 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.

  5. A slowdown is imminent.
  6. 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.

  7. Some companies are hiring.
  8. 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.

  9. Inventory is under control.
  10. 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.

  11. Industry coffers are swollen.
  12. 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.

13 comments on “Six Takeaways From Intel’s Q3 Results

  1. Backorder
    October 19, 2011

    Bolaji,

    Insightful points. My thoughts:

    1.  “China is now the number one PC consumption market in the world, while Brazil has become number 3.” 

    What about the production? Where are Intel's customers located and how does that geogrpahy look like? Is it still skewed heavily towards China?

     

    2.Traditionally PC(Desktop/laptop) companies like HP, Dell, Lenovo seem to be slow in moving to tablet/smartphone like form factor. Apple apart, the handset companies are miles ahead of the giants of the PC when it comes to Tablets/Smartphones(Motorola, Samsung, HTC, RIM, Sony). How can Intel rely on its allies from the PC industry to help it capture the lion's share when the dust settles in the PC vs Tablet war. Intel needs design wins in handset manufacturing companies and quick.

     

    3.The industry leaders from semiconductor and electronics manufacturing certainly seem to have managed the economic slowdown very well, as indicated in the results, supply situation and cash flows. Is there a correlation between the financial and capital market dips and the semiconductor industry performance? Would be intersting to see if it lags and by how much.

     


  2. AnalyzeThis
    October 19, 2011

    Good stuff, Bolaji. I think reading the first takeaway is important for those people who are declaring that the PC is dead and tablets will take over, etc. While obviously a lot of consumers in the US are buying tablets, the PC form factor makes far more sense in emerging markets due to their reliability, durability, easy ability to share amongst multiple users, and long-term value.

    Anyhow, even despite the kind of uncertain times, it is obvious Intel is still doing well. And long-term, I believe they'll certainly be more of a player when it comes to non-PC form factors. I am confident in Intel's ability to adapt to new challenges; they've certainly overcome many over the years.

  3. DataCrunch
    October 19, 2011

    We have discussed Intel a number of times on this board and usually the community as a whole has a negative view of Intel, espcially when the discussions are around the topic of Intel vs ARM.  I have said in the past and I am sticking to my guns and that is I am not betting against Intel.  With constant gloomy news on the economy lately, it is good to see positive results coming out of Intel and that they are hiring.

  4. jbond
    October 20, 2011

    For starters it is great to see Intel is hiring more workers, and is continuing its growth through a stalled economy. It is not surprising that China and Brazil have become two of the largest buyers of PC's. More developed countries already have a computer or two in their households, and their growth will be towards tablets and smartphones.

    The growth of tablets and smartphones will definitely erode some PC sales, but the PC makers need to look at devising new PC's with key features and keeping them somewhat affordable.

     

  5. SunitaT
    October 20, 2011

    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.

    Good to hear that looming slowdown might not translate into a full-blown recession. I think intel is using this slowdown as an oppurtunity to invest in emerging technologies. For instance Intel recently invested $20M in 6 Indian firms.

  6. SunitaT
    October 20, 2011

    but the PC makers need to look at devising new PC's with key features and keeping them somewhat affordable.

    @jbond, The main reason why people opt for tablets is because PC's are bulky, heavy and they consume lot of power.  I dont see how PC makers can imporve these features.

  7. jbond
    October 20, 2011

    @Tirlapur

    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.

    Apple is continuing to shrink their lap tops with Mac Book Air. These are just some of the things manufacturers should be looking at. Of course the Mac Book Air is nowhere near being under $1000.

  8. Ashu001
    October 20, 2011

    Tirlapur,

    That is precisely where the Ultrabooks (which Intel is aggressively pushing) comes in.

    I remember reading a blog by Barbara on EBN talking about the many disadvantages of a Tablet for a professional who is constantly on the move.

    I know they are really cool to look at but when it comes to utility a lightweight/heavy duty laptop/ultrabook will trump a tablet anytime/everytime.

    And guess what??? It can be used for Fun &Games as well…

    My feeling is that the tablet will turn out to be a nice fad/nice device to have;but the old workhorse-The Laptop will stick around.

    Regards

    Ashish.

  9. Houngbo_Hospice
    October 20, 2011

    “The main reason why people opt for tablets is because PC's are bulky, heavy and they consume lot of power.  I dont see how PC makers can imporve these features.”

    But this doesn't mean that the end of PCs is any time soon. No matter how bulky PCs seem to be they cannot yet be replaced by tablet PCs which are less powerful and limited in features. It is still tedious to do basic text editing work on tablet PCs for instance.

  10. t.alex
    October 22, 2011

    When those netbooks running Android on ARM go to the market, Intel may be more worried.

  11. Houngbo_Hospice
    October 22, 2011

    @talex:

    “When those netbooks running Android on ARM go to the market, Intel may be more worried.”

    Maybe, but Intel is prepared to face such competition. According to this 2009 article, “anticipating an influx of Android-powered netbooks to the market, Intel has begun preparations to supply manufacturers with chipsets that will support the platform.”   Intel will definitely try to break into the android market as well.

  12. Himanshugupta
    October 25, 2011

    @Hospice_Houngbo, its true that Intel is ramping up its effort to dispel the losses that has been incurred due to its inability to break into the tablet but these efforts might not bear fruits late till 2013 when windows 8 come in to the market. Intel is gearing up its line for running high performace windows. 

  13. Himanshugupta
    October 25, 2011

    What AMD could not do for years is what ARM is doing to Intel. I think that its good of the electronics in gerneral. It will bring the best in Intel and maybe put some pressure on them. I am not saying that Intel have not delivered in the years but i think they have become a bit reckless. 

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