{complink 2657|Intel Corp.} continued its strong financial performance in the September quarter with profits and sales rising strongly on a sequential and year-over-year basis.
The high-tech market is struggling, though, and analysts are forecasting weaker sales ahead due to problems in the general economy, especially in Europe and North America. Intel admitted to some weakness in the consumer market but says it sees growth in developing economies as well as in the corporate market. The only dark cloud on the horizon is the continuing uncertainty about 2011. Here are some takeaways both from the company’s results and from the general market:
Many new markets are emerging. The list of markets Intel could extend its microprocessors into include recently introduced products like netbooks and tablet PCs, but there are other exciting areas that are not so well known. These include smart meters, digital signs, in-vehicle “infotainment,” retail, and ATM solutions, areas that offer excellent opportunities for revenue expansion, according to Paul Otellini, president and CEO of Intel, during a conference call Tuesday, Oct. 12.
Will the tablet PC hurt Intel, and has the company missed the new opportunity opened up by {complink 379|Apple Inc.}’s iPad? Some analysts believe so, but that’s not how Intel sees it. “The big question on everyone’s mind is how Intel will respond to new computing categories where Intel has little presence, specifically tablets,” Otellini said. “We think tablets are exciting, and we fully welcome their arrival. Apple has done a wonderful job reinventing the category. Will they impact PC sales? Sure. At the margin, they probably will, [but] we are deeply engaged with a number of partners to bring to market innovative tablet solutions.”
There’s still a lot of uncertainty in the market. Despite reporting strong sequential revenue growth and forecasting a strong increase for the fourth quarter, Intel executives still appear concerned about the first half of 2011. They ought to be, and if you have your money in Intel, so should you. Why? The strong fourth-quarter forecast really tells us little that we don’t already know. Most companies by now have a good idea of their likely performance in the ongoing quarter because manufacturers place component orders several weeks and months ahead.
Intel’s guidance for the fourth quarter therefore only tells us what is happening now and offers no window into the critical first quarter of the coming year. With the economy growing only slowly, the strong 2010 third and fourth quarter performance may not be repeated in the first half of 2011. Caution is therefore warranted.
No other large acquisitions are being planned by Intel. “We always look for opportunities to create shareholder value [but] there are no other large acquisitions currently being contemplated,” said Stacy Smith, Intel’s CFO, during the conference call. That’s understandable. The company just made two rather large purchases: It paid $1.4 billion for {complink 2565|Infineon Technologies AG}'s wireless solutions business and $7.68 billion for {complink 3313|McAfee Inc.} — and even though some analysts expect it to continue making a push into communications to broaden its portfolio, Intel may be more cautious this time around. The company is still being criticized for the more than $10 billion it spent in the earlier part of this decade on acquisitions that have not yielded the expected returns.
Consumer spending remains weak. Consumers buoyed the market over the last several quarters, but sales into this demographic have slowed down sharply, except in developing economies like China and India. In North America and Europe, harried consumers worried over high unemployment figures are skittish to buy high-tech equipment. “It was in the mature markets — US, Japan, and Western Europe — that we saw some of the softness on the consumer side,” Otellini said.
The enterprise market is helping to prop up high-tech goods sales for now, but this too might be temporary. In a growing economy, companies do not only replace old equipment, but they also buy new kit for freshly hired employees. Since hiring appears to have stalled, the likelihood of a continued bounce in high-tech equipment purchases for employees remains very low.
Inventory levels are rising, but they are not excessive. The electronics supply chain may have seen some increase in channel inventories during the third quarter, but even this increase has been modest. (See 2010 Chip Forecast Slashed on Higher Inventory.) Rising inventories are always a problem, but there are indications the industry will quickly apply the brakes and bring inventories back into normal range. What this means is that a turnaround in demand during the first half of 2011 (my prediction) will quickly drain any inventory excesses and push up production as manufacturers race to satisfy customer requirements.
Intel overall is in excellent shape with strong upside promises for the future. I could rephrase it but I believe Stacy Smith, Intel’s chief financial officer captured it best when he said the following in the conference call: “In gross margin, our cost structure is just fundamentally better than it has been. The factories have done an outstanding job in bringing their productivity up, their efficiency up, their cost structure up. And then from a company level, we are benefiting a bit from mix. We divested the NOR business and we made great improvements to the NAND business. Those were probably a couple of drags to gross margin historically that we have now eliminated.”
I am fascinated by the way Intel is having to change its definition and understanding of its main market nowadays. This company has for some time focused on being a PC microprocessor supplier and over years directed a huge portion of its resources into building plants and developing the technology to support the computer market. Now, the advent of new applications is forcing another rethink. Based solely on the different market segments enumerated by Paul Otellini, Intel's president and CEO, will this company now have to play and win in all these non-PC market segments?
Bolaji, what is the likelihood Intel would be able to dominate in all these varied market segments? I think the company will eventually play a leading role in the tablet PC market–not all equipment makers want to be like Apple and develop their own processors for the tablet PC. What do you think will happen in all the other segments Otellini talked about?
Anna, Intel will have to learn to share. The era of a single company dominating in any segment of the electronics industry is likely over although consolidation will reduce the number of players eventually. Still, the industry is now thoroughly wary of fostering the creation of another Intel monopoly situation and as a result, we are likely to see the emergence of multiple suppliers that may be equally balanced in terms of market share. I have to admit, though, that some companies are starting out with a hefty advantage.
Companies like Intel have huge cash generating businesses already and can afford to spend what it takes to win. Others may only have one shot. If I have to put my money on a winner in any of the segments outlined by Intel's president Paul Otellini, I would go with Intel, even in an area like tablet PCs. Apple can try to dominate this segment but it is still a single player in a sector where many companies want a share. Intel will team up with these companies and sell its microprocessors to as many OEMs as possible while Apple will use its internally developed processor but not license this to rivals. That strategy will help Apple control the user experience but it's not a strategy for high volume generation.
Based on your comment, you feel Intel is the major player in their sector (fair conclusion). But what would you say about their 'biggest' competitor in AMD?
They have managed to stick around and still be a viable option to almost any Intel lines BUT they are still far behind Intel on the growth and revenue scales.
Pocharle, you are right that AMD is one of the biggest competitor of Intel. However, AMD is the main choice of people/business who are into gaming application, services etc. Intel so far dominates the other sector. Going back to the main topic, the major players of the OEM industry are into outsourcing. As mentioned by Bolaji in his article though theres a slow down in sales in different demography, the sales in China and India is somehow not affected. I think Intel should be more aggressive in getting OEM and other business deals in countries where most electronic companies outsourced their services.
I don't see any threat with the Apple being in the market. Apple Ipad, Ipod etc are just fads.
I appreciate your response on the former topic. BUT to touch on the latter, I don't know if you can consider the iProducts as fads. This might be the topic of another post but Apple has done a great job to spoonfeed its customers ideas. Now it's sort of like an addiction. It's sort of like 15 years ago when the iMacs started getting hot. No one thought i would last but voila, now we have iPod, iPad, iMac, etc.
Apple is transforming the way people do things, not just the devices they use to get things done. I see what you're trying to say but fad might not be the right word. They are more on a wave of innovation that builds on the crack model of tech (ie. hard to break that cycle once it's in motion).
I appreciate your comment. Well my take on that, Apple products will just come and go. Just like Nokia and Motorola during the start of the cellphone era. They were the key players during the start of the age of cellphones. I wont argue that Apple is one of the biggest innovators for this decade. The touchscreen technology is really great. However, not all consumers are really into touchscreen technology.
I just want to react to your statement -” Apple is transforming the way people do things, not just the devices they use to get things done” — what about Google?
I guess Google is something we should consider as the biggest threat for Apple.
Remember the saying “Jack of all trades, master of none”
I feel like sometimes these companies (a la Google) tries to have a hand in EVERYTHING! WHy, I don't know. I guess they want to be known as the guys that revolutionize EVERYTHING. THe problem with that concept is that if you fail is alot of things, it might outshine the few things that you do exceptionally.
Google has the advantage in the cloud but if they keep trying to take over the world (as some say), they might end up tripping over Apple's path to the top.
The merging and acquisition will need to fufill the existing gap that the Utility market will need. Alot of the SCADA systems today does not have the capability to map to a very detail level. It only provides the activity and energy usage for a region at best. What utility companies need is to have the usage at the lowest level like a household. That will help with the Demand Response Programs to be most effective
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I am fascinated by the way Intel is having to change its definition and understanding of its main market nowadays. This company has for some time focused on being a PC microprocessor supplier and over years directed a huge portion of its resources into building plants and developing the technology to support the computer market. Now, the advent of new applications is forcing another rethink. Based solely on the different market segments enumerated by Paul Otellini, Intel's president and CEO, will this company now have to play and win in all these non-PC market segments?
Bolaji, what is the likelihood Intel would be able to dominate in all these varied market segments? I think the company will eventually play a leading role in the tablet PC market–not all equipment makers want to be like Apple and develop their own processors for the tablet PC. What do you think will happen in all the other segments Otellini talked about?
Anna, Intel will have to learn to share. The era of a single company dominating in any segment of the electronics industry is likely over although consolidation will reduce the number of players eventually. Still, the industry is now thoroughly wary of fostering the creation of another Intel monopoly situation and as a result, we are likely to see the emergence of multiple suppliers that may be equally balanced in terms of market share. I have to admit, though, that some companies are starting out with a hefty advantage.
Companies like Intel have huge cash generating businesses already and can afford to spend what it takes to win. Others may only have one shot. If I have to put my money on a winner in any of the segments outlined by Intel's president Paul Otellini, I would go with Intel, even in an area like tablet PCs. Apple can try to dominate this segment but it is still a single player in a sector where many companies want a share. Intel will team up with these companies and sell its microprocessors to as many OEMs as possible while Apple will use its internally developed processor but not license this to rivals. That strategy will help Apple control the user experience but it's not a strategy for high volume generation.
Based on your comment, you feel Intel is the major player in their sector (fair conclusion). But what would you say about their 'biggest' competitor in AMD?
They have managed to stick around and still be a viable option to almost any Intel lines BUT they are still far behind Intel on the growth and revenue scales.
Pocharle, you are right that AMD is one of the biggest competitor of Intel. However, AMD is the main choice of people/business who are into gaming application, services etc. Intel so far dominates the other sector. Going back to the main topic, the major players of the OEM industry are into outsourcing. As mentioned by Bolaji in his article though theres a slow down in sales in different demography, the sales in China and India is somehow not affected. I think Intel should be more aggressive in getting OEM and other business deals in countries where most electronic companies outsourced their services.
I don't see any threat with the Apple being in the market. Apple Ipad, Ipod etc are just fads.
I appreciate your response on the former topic. BUT to touch on the latter, I don't know if you can consider the iProducts as fads. This might be the topic of another post but Apple has done a great job to spoonfeed its customers ideas. Now it's sort of like an addiction. It's sort of like 15 years ago when the iMacs started getting hot. No one thought i would last but voila, now we have iPod, iPad, iMac, etc.
Apple is transforming the way people do things, not just the devices they use to get things done. I see what you're trying to say but fad might not be the right word. They are more on a wave of innovation that builds on the crack model of tech (ie. hard to break that cycle once it's in motion).
I appreciate your comment. Well my take on that, Apple products will just come and go. Just like Nokia and Motorola during the start of the cellphone era. They were the key players during the start of the age of cellphones. I wont argue that Apple is one of the biggest innovators for this decade. The touchscreen technology is really great. However, not all consumers are really into touchscreen technology.
I just want to react to your statement -” Apple is transforming the way people do things, not just the devices they use to get things done” — what about Google?
I guess Google is something we should consider as the biggest threat for Apple.
I agree. I guess these two giants will be the contemporary Star Wars competitors. We will see who will outlast whom in this debate.
But the competitive edge of Google is the cloud computing which Apple doesn't have.
Remember the saying “Jack of all trades, master of none”
I feel like sometimes these companies (a la Google) tries to have a hand in EVERYTHING! WHy, I don't know. I guess they want to be known as the guys that revolutionize EVERYTHING. THe problem with that concept is that if you fail is alot of things, it might outshine the few things that you do exceptionally.
Google has the advantage in the cloud but if they keep trying to take over the world (as some say), they might end up tripping over Apple's path to the top.
The merging and acquisition will need to fufill the existing gap that the Utility market will need. Alot of the SCADA systems today does not have the capability to map to a very detail level. It only provides the activity and energy usage for a region at best. What utility companies need is to have the usage at the lowest level like a household. That will help with the Demand Response Programs to be most effective