Intel's margins fall on slowing demand

October 17, 2012 // 12:01 p.m.

Tags: #amd #earnings #financial #financial-forecast #intel #margins #market #revenue #share-price #shares #windows-8

Evidence that the PC market is shrinking continues to mount up, with Intel the latest company to warn that it has missed its targets for the financial quarter.

In its quarterly financial report, Intel announced that its gross margin for the quarter would be around 57 per cent. While that's a pretty impressive figure, it's quite some way short of the estimated 61 per cent analysts had pegged the company receiving.

The reasons given for the underperformance are familiar: Intel has blamed a slowing market for PC products, pointing the finger firmly at consumers waiting for the release of Windows 8 later this month before upgrading or purchasing new systems. A general shift in the industry to favour mobile devices - including tablets and smartphones - is also likely to have affected the company, whose Atom system-on-chip (SoC) products account for barely a single percentage point of the smartphone market.

'We believe that the Q3 PC sales grew approximately half of the seasonal norm and reflected flat enterprise sales,' Intel chief Paul Otellini told investors and press in the company's latest earnings call. 'As we look into Q4, we believe that the overall PC business will grow at about half of what we would expect from normal seasonality. Our revenue forecast growth is below these levels, as our customers are taking a cautious inventory approach in the face of market uncertainty and the timing of the Windows 8 launch. Our forecast assumes an incremental decrease in inventory and our customers going into year-end.'

Revenue for the quarter is expected to be around $13 billion to $14 billion, roughly on target with analysts' expectations - but as anyone who has run a business will know, revenue is nothing if the margins are shot.

With all that said, Intel is still performing well - especially compared to its rivals in the industry. AMD's revenue took a 10 per cent drop quarter-on-quarter, while margins slipped to 31 per cent compared to Intel's 57 per cent. Where AMD is looking to cut thousands of jobs to save cash, Intel is likely to just take the hit on its margins and continue as normal - something the far larger company can afford, thanks to a market cap some hundred times larger than that of AMD.

Intel's investors certainly don't seem to be worried. Since the company's earnings call last night, the share price has risen 2.85 per cent to $22.35 - helping to counteract a general fall in the company's value over the last month.

It's not just the silicon makers who are struggling with a slowing market, either: IBM's third-quarter revenue has been announced slipping 5 per cent, with server and storage hardware particularly badly hit with a massive 13 per cent drop in revenue. Despite that, Big Blue has been able to keep its spending in check and posted a five per cent jump in profits.
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