SAN FRANCISCO—Disappointing first quarter results and a lower-than-expected second quarter sales target by PC supplier Dell Inc. is bad news for Intel Corp., which has forecast growth above the seasonal average for the rest of the year, according to a Wall Street analyst.
In a conference call with analysts following its first quarter report, Dell (Round Rock, Texas) indicated that PC demand is slowing, tablets and smartphones are cannibalizing notebook sales and customers are delaying IT spending, according to Christopher Danely, an analyst at JP Morgan. In a report circulated late Tuesday (May 22), Danely said Dell's guidance and resulting commentary are a negative data point for Intel, which is roughly 85 percent exposed to the PC end market and derives about 15 percent of its revenue from Dell.
"Intel has in our opinion some of the most aggressive guidance in all of technology, with the company expecting above-seasonal growth every quarter for the rest of 2012 and also above-seasonal revenue growth in 2013, despite several large OEMs such as Cisco, Dell, SAP and Cognizant all pointing to slowing demand," Danely wrote. "We believe the cautious demand environment coupled with lack of exposure to smartphones and tablets puts Intel’s guidance at risk."
Dell reported sales of $14.4 billion for its first quarter of 2013, down 4 percent from the year-ago period. The company reported a net income in accordance with generally accepted accounting principles (GAAP) of $635 million, down 33 percent from the year-ago quarter. The company's GAAP earnings per share, 36 cents, was down 27 percent from the year-ago quarter.
Dell said it expects sales for the current quarter to increase by 2 to 4 percent from fiscal first quarter levels, short of consensus analysts' expectations.
Danely said Intel is one of the few semiconductor companies whose margins are close to peak and whose growth spending is expecting to outpace sales growth this year. He called Intel's consensus estimates among the most at risk for the year of any semiconductor company.
Despite the negative data from Dell, Danely maintained JP Morgan's "neutral" rating and $26 price target on Intel's stock. Intel traded at $35.18 in late morning trading Wednesday, down 3 percent from Tuesday's close.
Intel is going to face a problem if insists in the actual course. So far has had two consecutive years of delays on the new CPUs launch. Both caused (as declared) by slow sales of the previous product lines.
Their relative lower involvement in mobile platforms coupled with foreseeable cloudy demand weather only reinforces the trend.
My take is that Intel's own decision to keep bulky and battery consuming 90nm size chipsets until Haswell architecture (2013), was as illusion justified only considering AMD competition, but NOT in view of the spectacular phone/tablets trend. This was supposedly mitigated by the Ultrabook push, but so far ultrabooks are proving to be late and not enough alluring to compensate the aggregated demand loss.
///The solution? Keep Ivy thin and release Haswell early hence permitting real thin and light mobile computing. Do this with extra-good communication with laptop manufacturers and to palliate the actual slow sales, allow and promote efficient Ivy CPU upgrades to the whole selling lines on the shelves, including 2nd generation Sandy bridge... which are not going to cannibalize the radical advancement that Haswell is going to be.
Intel within the next few quarters will cease to become a PC up vendor. I think they are working hard to get the mobile business settled. They fired the VP in charge and then went ahead and bought the wireless business of Infineon. It does seem that Dell is not the driver to Intel's future anymore.
Dells sales are are disappointing, but how much of that is due to low PC sales in general, and how much is due to Dell losing market share to other PC vendors such as Acer, Asus, Lenovo, Toshiba, etc.?
I would not come to the conclusion that the PCs must be dying based on Dell alone. I think Dell has made a very poor strategic decision by getting out of the "highly configurable" PC business. For over a year they severly limited how much you can configure the PC you can buy from Dell. In this regard HP is still as good as it has always been, but not as good as many of the small custom houses (which build a lot of servers as well as gaming and specialty machines.)
Highly configurable PCs have higher margins because typically they are more expensive. If you want a standard PC you can but it at Best Buy, Office Depot, Amazon, or many other outlets. These so called "off the shelf" PCs have razor thin margins. A Computer manufacturer can make a lot more money from configurable PCs for the same revenue. So, Dell's decision completely befuddles me. I suspect this may have something to do with their latest financial results. Let me add that in the last 15 years, I bought 9 computers from Dell, 4 from HP, and 1 from a custom house. The last four of my purchases were not from Dell. There is only one reason for it: not enough configurability!
It would be interesting to know the breakdown of laptop's, desktop's and server's sales. Virtualization and Cloud computing might have contributed to the -ve growth of revenue. Similarly, I would be interested in learning whether the IT spending on servers have shifted to the consultant dollars for virtualization. What does the revenue growth of VMWare look like?
And, of course, much depends on how well Intel has positioned itself for the tablet and smartphone markets. There have been mixed reports in that regard, so it will be interesting to watch the next quarter or two in that regard.
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