The chipmaker that supplies the main computer processor for four out of five computers sold world-wide reported that first quarter revenue grew slightly as earnings fell below levels from one year ago. Intel (NASDAQ:INTC) posted revenues of $12.9 billion versus expectations of $12.8 billion and net income of $2.74 billion compared to $3.15 billion one year ago. Earnings per share declined to 53 cents from 56 cents for the same period one year ago. Analysts forecast 50 cents per share. The company is still recovering from reduced demand for its chips from computer manufacturers following a global slowdown spurred by a shortage of hard-drives in 2011 due to massive flooding in Thailand where many hard-drives are made or assembled from components manufactured in the region. PC manufacturers slowed production and reduced chip purchases when hard-drives became more difficult to source. Reuters reported that in addition to flood-induced supply chains issues, that a consumer shift away from PCs and laptops to tablet devices is now making it even more challenging to accurately predict the need for chips as makers of PCs, laptops and tablet struggle to find the optimal product mix to meet demand from consumers.
Codename Ivy Bridge
Intel has been gearing up for its biggest product release in many years as its new chipset processor aimed at supporting the growth of super-thin laptops, also-called “ultra-books”, is about to take center-stage in the second half of this year. The sales, marketing and advertising machine at Intel will be kicked into overdrive to explain the new technology “Ivy Bridge” to consumers in an effort to drive customers to their preferred PC-vendors to upgrade their computers. The effort to ramp-up production at Intel facilities has required increased spending which cut into first quarter margins and is expected to require further spending as the new chip takes hold and PC makers begin to place order as consumers become aware of the new processor standard. The ultrabook is expected to compete head-to-dead with the likes of Apple (NASDAQ:AAPL) Macbook Air laptop and iPad tablet devices. Some analysts fear that consumers will shy away from the ultrabooks because of the higher price due to more expensive components like solid-state hard-drives and high-definition screens. Still, other analysts feel that there is pent-up demand for computers due to the snails-pace recovery of the economy and believe that companies and consumers will open their wallets to stay current on the technological front.
U.S. vs. Global Marketplace
Computer sales have been slowing for several years and that has been particularly acute in the U.S. Global PC shipments increased 1.9 percent for the first quarter according to research firm Gartner. The news is especially good for Intel as every PC contains a processor chip and computer makers have limited choices when it comes to reliable vendors. The company will also benefit from Microsoft’s long-awaited release of Windows 8 later this year and the expected increase of computer purchases that usually accompany a Windows upgrade cycle.
The Outlook
Intel has been a strong performer over the years and recently hit a multi-year high of $28.78 per share before its earnings release. The company is confident that the remainder of 2012 will build upon the first quarter. Chief executive officer Paul Otellini commented “The first quarter was a solid start to what’s expected to be another growth year for Intel.” He added, “In the second quarter we’ll … accelerate the ramp of our best server product ever, providing a tremendous foundation for growth in 2012 and beyond.” The company has paid dividends of $1 billion and repurchased shares totaling $1.5 billion in hopes of laying the groundwork for future profitable growth.
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