Intel warning may indicate fourth quarter, Windows 8 woes too
Summary: The PC industry is apparently trying to burn through inventory just as it should be building components ahead of a Windows upgrade cycle. The fourth quarter could be in trouble, say analysts.
Intel's third quarter revenue warning signaled that inventory levels in the PC industry are bloated even though they should be depleted ahead of the Windows 8 launch.
The company projected revenue to be $13.2 billion, give or take $300 million (statement). Intel had projected $13.8 billion to $14.8 billion. Wall Street was expecting Intel to report third quarter earnings of 60 cents a share on revenue of $14.2 billion.
Here's the short version:
- Intel is seeing weak demand due to economic concerns.
- Demand in emerging markets is weak.
- The enterprise PC market is soft.
- Customers are cutting orders when they should be stockpiling components for the fourth quarter.
- Data center demand is solid.
The upshot is that Intel's warning covered the third quarter, but may preview ongoing issues in the fourth quarter and into 2013. Simply put, inventory levels at the end of the second quarter were at multi-year highs and not enough PCs are being sold. Ideally, Intel should be seeing decent demand ahead of a Windows 8 launch and the ultrabook parade that goes with it.
Morgan Stanley analyst Joseph Moore said in a research note:
Recall that inventory days after 2Q were at a multi-year high, which is likely to depress factory utilizations and thus gross margins in 4Q. Further, customer inventory levels are elevated still, despite a 7% Y/Y decline at the midpoint in 3Q, when inventory should have been depleted before the Windows 8 release to production a couple of weeks ago. The ultrabook push in 4Q is likely going to drive a high i3 mix in higher-end notebooks.
The big problem is tablet demand and the post-PC era make this PC-Windows upgrade cycle very interesting to watch. Piper Jaffray analyst Auguste Gus Richard said Intel's "warning speaks to the outright decline of the PC demand especially since Q4:11 was the peak impact of Thailand floods and the comps should be easy."
He added:
Moreover, Intel was optimistic regarding demand from Ultrabooks and expected 40% of consumer demand in Q4 or 26% of overall PC demand to be from Ultrabooks. Given the magnitude of the miss in Q3 as well as feedback from contacts, we think this is unlikely.
Betsy Van Hees, an analyst at Wedbush, said that Intel is seeing a triple crunch due to the economy, technology buyers' penchant for tablets and an uncertain uptake for Windows 8.
Intel’s negative pre-announcement doesn’t come as a surprise given the considerable global macroeconomic challenges and our multiple industry checks indicating a very weak PC market further compounded by muted 2H seasonality. Our cautious view remains unchanged due to our concerns for (1) muted consumer’s adoption rates of Ultrabooks, (2) uncertain sell-through of Windows 8, and (3) muted holiday season, particularly for PCs given the increasing uncertain macroeconomic environment.
Williams Financial analyst Cody Acree agreed:
While Intel cited the soft macro, the company stopped short of pointing to any degree of PC cannibalization by tablets and/or smartphones. Although it’s hard to define the impact, we believe it’s very difficult for anyone to argue that tablets are not having a material negative impact on notebook sales, particularly in a soft economy when consumers’ discretionary budgets are tight.
Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.
Talkback
Buy low. And low it's going to be.
Why is this ENTIRE market dependent on Microsoft?
How does OS X benefit OEMs? Well, clearly they don't. If Microsoft is the OEM's worst enemy, Apple is Cthulhu. Apple does absolutely nothing to help OEMs profit. If OEMs had to rely on Apple, every single one of them would be forced to leave the market. So there would be no PC market, there would only be a Mac market. Not good.
So what if every OEM switched to Linux? First off, there would be no upgrade cycle and there would never be any "incentive" (real or imagined) to buy a new PC to get the new Linux OS. OEM sales would tank. We also know that Linux is perfect and works just as well on 20 year old PCs as it does on new PCs. People will never look at their PC and think "this is slow, time to buy a new one". OEM sales would tank.
So if OEMs had to rely on Linux, most would go out of business due to tanking sales.
I'm not saying this is good or bad, it simply is. You would have to decide for yourselves if a market where there were no OEMs and Macs were the only PCs you could buy would be a "good" market.
It just struck me, reading this article, exactly how many companies absolutely depend on MS for their health because if MS were to vanish, nearly every single OEM would vanish. Intel would also be in serious trouble since, from this article, much of Intel's health is absolutely dependent on MS.
Please note that I'm not talking about benefit to consumers, only benefit to OEMs. Since everyone here seems to think that MS is the worst thing ever for OEMs, it just got me thinking about how well OEMs would do without MS. My belief is: not well.
Sigh Fi
But, if you want to do think-pieces of a more contemporary subject, perhaps you may wish to consider the outlook one year later of the Intel Ultrabook effort and commitment of 300 million dollars (over 3-4 years). If it was supposed to ignite pc growth, it didn't really do that. Okay, to be fair, that is better phrased it hasn't happened yet. If the campaign was supposed to enable Intel's customers to compete with each other and Apple, a successful, growing Intel customer, over things similarly specced to the MacBook Air, well, why was that such a good idea?
Reading today's guidance from Intel, I have to ask why would we expect that inventory would run down in anticipation of Win8, and the answer must be that the production lines should have been slowed down 9-12 months ago so that sell-through would have depleted the channel. And so, there's the news story to be dug out: why didn't OEMs use the Thai flood to adjust production and inventory to true demand?
The signs are there. Rumored high licensing costs for Win 8 RT. Low upgrade price for desktop Win8. Even manufacturing the Surface. Microsoft is making some serious hedges on their standard bet on pc growth in 2014.
It started with Windows 7
If PC makers want to sell new PCs to existing users, they'll need to give those users a reason to upgrade. They can no longer rely on new versions of Windows to drive sales of new PCs for them. The same applies to Intel and CPUs. Pushing up clock speeds or adding more cores is no longer enough.
The Ultrabook idea is at least something on Intel's part, but it's just following Apple. From Intel's point of view, however, Ultrabooks are preferable to Apple. Apple have no loyalty to Intel, and would jump ship in a minute if an Apple-designed Arm CPU could compete with Intel's offerings. Intel's management know that.
There will be no burn through of inventory ahead of W8.
WELL TODDY, MICROSOFT HAS NEVER BEEN GOOD FOR CONSUMERS...
Just 2-years later and the 40-year-old Desktop computer is all but OBSOLETE.
All the greedy companies who sold us micro-processors more powerful than we could ever use, operating systems worse than we ever deserved and hardware cheaper than we ever imagined are on the precipice of becoming "buggy whip" companies in the midst of the automobile revolution at the turn of the 20th Century.
Mobile is the glorious future, but we will talk about Intel, MS, HP and Dell to shrinks about how these companies are forever ingrained in the "inglorious" computing past.
Let me know when your crappy ipad
WHAT'S THE MATTER HOP 64BIT...MICROSOFTY AND INTEL ARE IN A WITTLE TROUBLE?
Intel couldn't make a power efficient chip if their company depended on it. Yeah, they always promise the next one uses less wattage, until the battery starts draining prematurely.
The computer world has changed for the good. My iPad 3 has supplanted my 2010 Macbook Pro and my 2011 Mac Mini as my primary, "goto" computing device; primarily because of it's ultra-portability and flexibility.
I know all you MS and Intel Fanboys don't like to face the truth...but the Post-PC world is not just upon you, right now it's kicking you where the Sun don't even shine :0)
Stretch the FUD further, may as well you're most of the way there.
What you probably should have said - is that within the next couple of decades they'll be all but gone. For now ? Not likely. Theres still far too much dependence on them. Go ask the industrial designers and electrical engineers what they build schematics on. Until the whole cycle of production is on mobile devices, its far from dead.
Odear.......
Everyone in my team at work all have Droid or Apple tablets, and we do use them for work, but 90% of our work is still done off Laptops, tablets simply don't allow multitasking, if you use a dozen different applications, you need a Desktop OS.
I don't have a PC any more, just a server and a couple of laptops, one Linux, one Windows and I use them both about evenly, Desktop operating systems aren't dead, they just exist in a world where there are different form factors for different computing functions.
what?
Mobile is certainly in the future
Laptops and desktops will continue to be around.
After all... those programs that you use on your iPad? They have to be made somewhere. At this point, it isn't going to be on an iPad. I don't know if it ever will.
You have to be kidding me.
As Per My CNET Post:
Mobile encompasses all the computing basics of the Desktop, plus never before seen portability, security, build quality and battery life.
There is an obvious processing power tradeoff, but the inherent benefits of going mobile are both demonstrative and astounding.
Millions are leaving Desktops....well, on the Desktop. Unfortunately for Wintel, the software, microprocessors and hardware of modern Desktops will last for years, hampering any need to upgrade them in the near future.
Further complicating things is the fact that when these machines are actually ready to be upgraded, more advanced mobile devices will most likely render them obsolete altogether.
Intel's transition to Mobile will be slow and painful, and that's only if they are able to get there at all; as there will always be legacy Desktop, Enterprise and Server business to keep them plucking away for years to come.
Microsoft's transition to Mobile will be precarious, primarily because they continue to cling to the Desktop, by positioning a primary Desktop OS as a Mobile OS.
Expect PC builders to be hit the hardest, as they watch their Wintel bread and butter sink away like the Titanic. HP and Dell now find themselves struggling to free themselves of their Wintel reliance, while attempting to repurpose their respective companies as Software as a Service (SaaS) vendors.
Put down the crack and try some common sense
Strike 1.
No gauging mobile data plans that bite your wallet off makes desktops far more affordable than the ripping off tablets, which will be the key as the current recession worsens.
Strike 2.
No physical constraints on heat, size and battery life when it comes desktops, which guarantees desktops always have the better hardware than tablets.
Strike 3, sorry the mobile hype is busted.
You think the economy only hits desktops but spares mobiles? You are just about 1 or 2 years away from seeing Mobile getting sluggish as well.
Not always
Tablets don't need mobile data plans.
You're right, desktops don't have size constraints and will always be more powerful.... but you don't need a 2.4 Ghz quad core if your job is mostly writing documents.
Or...
Retards like Orandy or Zeroandy can tell us how the PC is dead, but PC's sold 10 times as many tablets last year, so please get back to the fry machine loser!
Trend away from desktops will peter out
It's time for a change...
Enter the solution. Apple does their own SOCs, currently using ARM. But Apple has demonstrated great agility switching processors (Motorola -> PowerPC -> Intel...) and they are prepared and willing to make big investments and take big risks to position their products beyond the reach of competitors (Retina Displays, Machined cases, huge FLASH memory buys, etc.)
And MIPS, just down the street from Apple and Intel, is shopping their RISC architecture as a competitor to ARM for low power / high performance applications.
This could work out as a marriage made in heaven (or at least in Silicon Valley). Apple could get a performance / power bump ahead of their competitors (if Intel gave them say a year of exclusivity...). Intel would get a platform to take their process technology to mobile and low power servers. MIPS would get a warm, cozy home for their architecture.
PCs are lasting way longer