Intel results show blurry vision

@ 2013/07/18
Over the last few months, Intel has been getting a warm response from analysts who think it has been making all the right moves in the mobile arena. As a result, its second quarter results were greeted with utter shock by the markets.

Intel reported overnight that its net profit for the second quarter fell 29 percent from a year earlier to US$2 billion. Its sales for the same period stood at $12.8 billion, down 5.1 percent year-on-year, and the figure fell below a previous market estimate of $12.9 billion.

Sales of its PC chip division fell 7.5 percent from a year earlier. As the PC chip operations accounted for 30 percent of Intel's total sales, its bottom line was gutted.

Intel said its sales for the third quarter are likely to stand at $13.5 billion but the market had previously anticipated that the chip maker's revenue would hit $13.7 billion.

The question is, if Chipzilla is making all the right moves into mobile, why is its balance sheet starting to look rotten?

The answer is that the whole mobile push is based on a fallacy that the world is moving to mobile computing rather than the PC. This weird idea was first pushed by Apple and since taken up by some of the press, ending up as gospel among analysts.

Pundits saw falling PC sales while tablet and mobile sales increased, they bought Apple’s dream of a mobile world and the death of the PC.

While it was true that PC sales were falling, that wasn't solely thanks to mobile. It had everything to do with a recession which was not going away. Intel’s bread and butter was PC and server chips, and companies simply sat on their old models rather than upgrading.

Chipzilla was not helped by the fact that Windows 7 and 8 did not really need as much in the way of processing power of its rivals so there was no immediate need to upgrade.

While Intel pushed into mobile chips (and fashion bags) its underlying problem was not going away. Consumers were too broke to buy a new PC when their current model either worked well or well enough. While they might have splashed out on a new phone or tablet, they were not going to replace a PC.

Intel wasted its R&D money pushing into a mobile market just as it was revealed to have major limitations and sales were drying up. True, it cut itself a small share, but it still has to face the fact that until people start buying PCs again it is stuffed.

Rather than pushing into mobile, Intel and its hardware and software chums would have been better off encouraging PC sales.

For example, Intel could have come up with a chip for Windows 8.1 which meant users were stuck with Windows 8 or lower if they did not buy it. If it wanted to push its Ultrabooks, it could have cut the price of the chips expected to run them.

In fact dropping the price of anything hasn't seemed to have occurred to Intel, which carried on blindly pinning its hopes on Apple’s marketing dream.

It appears to have taken hardware makers with it.

Asustek gave its weaker notebook computer shipment estimate in late June. Asustek said it expects that due to weakening demand in the global PC market, its notebook computer shipments for 2013 are unlikely to hit 20 million units, down about 10 percent from the 22 million recorded in 2012.

Intel’s results have made investing in hardware companies a risky business.

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