Intel says business is fine, especially in notebooks

The key message from Intel's earnings call last night: consumers and businesses are still buying lots of PCs and microprocessors despite economic woes in the U.S.
Written by John Morris, Contributor

The key message from Intel's earnings call last night: consumers and businesses are still buying lots of PCs and microprocessors despite economic woes in the U.S.

The ramp of the company's latest 45nm Penryn processors, which first appeared in servers, then notebooks, and finally desktops, is impressive. Intel has shipped more than 8 million 45nm chips so far--double the shipments it reported a little more than a month ago at an analyst meeting. More important, Intel said it still expected PC unit shipments to grow in double-digits this year. Market researcher IDC predicts the number of PCs shipped will grow from 258 million last year to 286 million this year, a growth rate of 11 percent.

Much of the growth has been notebooks, and that will continue. People tend to buy more laptops per person, and replace them more frequently than desktops, according to Intel. "I think a notebook is becoming a bit of a fashion statement and that has a cache associated with it, and we are seeing some of that," Intel CEO Paul Otellini said on the call. "You have certainly seen that with the Apple product line growth."

What's more surprising is Intel's optimism about a particular category of notebooks, low-cost laptops that use its Atom processor. Rather than replacing existing laptops with cheaper ones, Intel thinks this new category could significantly expand the overall market.

"Our unit shipments [of notebook CPUs] were up sharply versus last year and with the introduction of the low-cost Netbook category, we believe that the shipment crossover of desktop PCs to mobile PCs will now happen this year and not next year, as we originally anticipated," Otellini said. "The bulk of the early sales of the Netbooks has been either in mature markets or tier one cities of places like China, and most people that are buying them are buying them as a fashion accessory, as a second or third notebook in the household . . . But I really think the unknown dynamic is what happens when these $200 to $300 Netbooks are unleashed in India and China and Indonesia and there is no model for that at this point in time because you are dealing with something that's never existed before."

The only negative note was flash memory, a business that shows no signs of improving anytime soon. Intel manufactures two types of flash: NOR, which is used in cell phones, and NAND, which is used in a wide variety of electronics. Combined revenues were down 15 percent simply because there's too much flash in the world, so prices are dropping at a faster rate than the actual manufacturing costs.

Intel recently completed the spin-off of its NOR business to new company Numonyx, which also includes the NOR assets of STMicroelectronics. Intel will continue to supply NOR flash to Numonyx for a few quarters. The NAND flash comes from a joint venture with Micron. In its own earnings call a couple of weeks ago, Micron essentially said things were going fine. It has made progress cutting manufacturing costs, and it announced some moves to slow down the growth in the amount of NAND flash it manufactures for both companies. But last night it sure sounded like Intel is prepared to make more drastic moves if NAND flash doesn't pick-up. "I want to assure our shareholders that we entered this business to make money and we will continue to make the appropriate decisions necessary to that end," Otellini said.

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