January 17, 2006 6:05 PM PST

Intel's earnings may portend market health

Intel's surprise departure from its own expectations for fourth-quarter earnings and revenue left executives, analysts and investors worried about the state of the PC industry heading into the new year.

The chipmaker blamed a drop in demand for desktop PCs for its disappointing fourth-quarter performance during a conference call Tuesday afternoon. Intel said fourth-quarter revenue was $10.2 billion and earnings per share were 40 cents, off from its own guidance provided in December of $10.5 billion and 43 cents.

Analysts were left wondering if Intel's results were contagious. AMD reports its fourth-quarter earnings on Wednesday, which could signal whether the problems Intel faced in the fourth quarter extend to the rest of the market. IDC and Gartner are also expected to report worldwide PC market share numbers for the fourth quarter this week.

"The biggest surprise is not that the market is seeing inventory slosh, but maybe it's Intel's lack of ability to measure this," said Cody Acree, a financial analyst with Stifel Nicolaus.

The PC market is rapidly shifting to notebook PCs at the expense of desktops, and the rate of that switchover seems to be accelerating. Desktop shipments didn't hit the targets that Intel and other analysts expected in the fourth quarter, and the company was also left holding the bag because it was unable to build enough chipsets to accommodate its desktop processors, Acree said.

This opened the door for AMD to steal market share away from Intel during the quarter, said Roger Kay, president of Endpoint Technologies Associates. Low-end desktops are an area of relative strength for AMD, and Intel estimated that AMD probably gained a percentage point of market share during the quarter, chief financial officer Andy Bryant said during a conference call after Intel's earnings release.

PC demand during the fourth quarter, one of the most important periods of the year for the PC industry, appeared at first glance to be in line with expectations set earlier in 2005, analysts said.

The average selling price of a desktop PC during the holiday season was about $700, in line with recent trends, said Stephen Baker, director of industry analysis with NPD Techworld.

"If desktop prices were weak, it must have been that they didn't see enough trading up during the end of the holiday season," Baker wrote in an e-mail interview. Dell reported the same problem, an inability to convince consumers to purchase more powerful and profitable desktop configurations, when it reported its own disappointing financial results in its second and third quarters of 2005.

Much attention is always paid to Intel's financial results as a harbinger of the overall state of the IT market. But Intel is in the midst of an image makeover this time around as it invests heavily in new consumer PC technology and prepares products for the second half of 2006, which analysts expect will help close the performance gap between Intel's chips and AMD's.

"Their hopes are clearly pinned on mobile for the future," Kay said. "As usual, they say they can turn it around. But like the Dell guys a couple of months ago, management seemed rattled."

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Intel's Earnings May Portend Market Health
Perhaps it is bacause their rival, AMD, makes a better processor at a better price point. When will Intel finally wake up and move on beyond the P4 architecture?
Posted by NoNoBadDog! (13 comments )
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Wait till Windows DRM is unleashed
If you think Intel is hurting now wait until Windows DRM is released. That is when the entire industry heads to the toilet. Who wants to spend thousands of dollars on non functional PC's.
Posted by GrandpaN1947 (187 comments )
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umm That's why your next PC will be a Mac...
nt
Posted by TyTyson (154 comments )
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Corporate buyers don't care about DRM
Because music and movies have no place in their world.

Users might complain to IT departments that they can't play copied media anymore, but the people in charge won't care less.

The problem here is that around 3/4 of new PCs are bought by corporates, not home users, actually I should say 3/4 of PCs that cost over $1000.

Gaming PCs are still a niche market, not many home users buy $2000-$3000 computers.

Worse, 99% of sheep that buy new computers don't understand anything about how they run and what the implications of Vista will be. Well not until they can no longer backup a DVD or rip a CD without paying a second license fee first.

So those that believe Macs will grab a Firefox style chunk of the market are dillusional, not because the OS and computer are bad products (they're actually pretty good), but because only the more affluent user is going to spend twice the cost for what will appear to them to be the same product.

If they don't understand what Vista and DRM are going to do to their media, they certainly won't understand the value of a more reliable computer with a hassle free OS.

The bottom line is people are sheep and will continue to buy the crap they are shown, as long as the slick bast@rds at electronic superstores show them enough shiny features that won't work because standard models don't come with 2-3GB of RAM and dual core processors.
Posted by ajbright (447 comments )
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Besides gamers
Who needs a more powerful PC? My 5 year old Dell P3 750Mhz is plenty. I've never once wished I had a faster PC. I can access unix servers that have plenty of i/o and cpu if need be.

What's the next killer app for the desktop? Prolly going to be voice recognition? I don't know... I've never wanted to talk to my computer (besides to curse Microsoft) either. I can certainly type as fast of faster than I can speak. Also, I can cut, copy, and paste text. If I had to switch between speaking and cutting, copying, and pasting then it'd definitely be waaaay slower. Yeah, interactive voice will prolly end up in call centers running on servers too.

Intel chips are inferior to AMD too.
Posted by scdecade (329 comments )
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Switch to Dual Core to Blame?
Personally, I think its a bad time to purchase a mid to high end PC.

Generally, single core PCs are still faster for single threaded applications than their dual core counterparts. The problem is very few applications are currently dual or multi threaded, especially games.

So you can buy a single core processor for the best performance in the short term, but know you have almost immediate platform obselence or buy a dual core which is slower in the short term in the hopes dual threaded applications will come out before dual cores are faster than their single core counterparts.

Neither is a good choice. When intel comes out with a 4 Ghz dual core, I will start seriously considering a new PC. Until then the market is just in two much transition.
Posted by jphillips1868 (6 comments )
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Dual Core is for video
I use Vegas video alot, it is multi-threaded and I am seriously thinking about getting an AMD64X2 to take advantage of it, what I am really waiting for is 64 bit to take off, that will really improve performance.
Posted by Vaasman (9 comments )
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PCs are just lasting longer
All thats happening is that businesses are holding onto their PCs for longer than they used to.

The old 3 year cycle has been replaced by 5 or 6 year replacement plans, which includes office applications and the OS.

Corporate buyers are finally understanding that there is no difference between Office 95 and Office 2003 except for the 3 anal users that actually do more than type letters and timesheets with Word or Excell.

As for Vista I don't hold out much hope for Microsoft until they finally stop rolling out new patches for older operating systems.

At the moment large numbers of corporate users are still using Win2000 or even NT4, but are gradually moving to WinXP due to security issues.

However even if they buy new workstations with Vista, the chances are they will downgrade those systems to WinXP for the sake of compatibility (you are allowed to regress your OS two versions under most corporate license agreements) and will not even consider a move to Vista until the first service pack has been released and fully tested by IT departments.

So with faster processors extending the life of PCs, and with software upgrades appearing to have no real business benefit, the market that buys at least 3/4 of new PCs is going to slow to a steady trickle.

The only good news is that because it usually costs more to support a PC older than five years than it does to buy new, there will still be a reasonable market, but nothing like the boom years of the late 90s.
Posted by ajbright (447 comments )
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