Intel Grieves over Losing Business
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The slumping personal computer business and the frail economy are hitting the world’s largest chip-maker’s sales. Intel (NASDAQ: INTC) is expecting a 7% decline in the third quarter, with revenue of $13.2 billion as compared to same time last year when Intel's revenue totaled $14.2 billion.
Intel’s management had forecasted that the third-quarter revenue would range between $13.8 billion to $14.8 billion. However they never really expected the personal computers business to fall drastically and other devices like tablets and smartphones to capture the market at a startling rate, providing opportunities to other players like ARM Holdings (NASDAQ: ARMH) and Nvidia (NASDAQ: NVDA) to compete head on in the chip-making arena.
ARM’s mobile device friendly chip architecture was designed for low power consumption as compared to Intel’s high power consuming chips. ARM is a designer of chip architecture, and its partners take those blueprints, modify them to their own needs, and fabricate chips for use in mobile devices.
Nvidia developed a system on a chip series named Tegra for mobile devices such as tablets and smartphones. The Tegra integrates the ARM architecture processor, graphics processing unit (GPU), northbridge, southbridge, and memory controller onto one package. Tegra 3 quad-core and Tegra 2 dual-core super processors deliver unprecedented performance in a wide range of mobile devices.
Rise in competition, bad economic conditions and a fall in PC business has led Intel to expect a fall in revenue in the third quarter. This news had a punishing effect on the company’s share price which fell by 90 cents or 3.6 percent last week to $24.19 and continues to fall further.
** Graph source: http://www.nasdaq.com/symbol/intc/interactive-chart?timeframe=5d&charttype=line
Many other companies like Microsoft, Hewlett Packard and other chip-makers like Advanced Micro Devices, whose fortunes are tied to PC manufacturing and sales, also felt the heat when their share prices fell.
Smart phones and tablets are the prime reason why consumers are drifting away from the PC market. Consumers prefer sleek and convenient mobile devices to surf the web as compared to desktops and laptops. This change in the consumer’s buying pattern is what is worrying Intel because they have not done enough to capture the mobile devices chip market.
The BYOD (Bring your own devices) trend adopted by some companies is another reason for the fall in PC sales. Analysts suspect that business executives are becoming more reluctant to buy new PCs because of concerns that the wobbly economy might topple into another recession.
PC makers were hoping that with the release of the new Windows 8 Operating system from Microsoft (NASDAQ: MSFT), the sales figure would increase. However this might not be the case. Microsoft’s new operating system comes with a completely new look and feel. It would be difficult to say if PC users would be ready to adapt to these changes anytime soon. Also most of the corporate buyers would stick to the current version of Windows until they get a better grip on how the new version works.
It is going to be tough to sell PCs running on Windows 8 with so many tablets being released by companies like Apple, Google, Amazon, Samsung and Microsoft itself.
Intel’s business trend would not likely recover in the short term given the weak PC market. Also Intel is facing a tough competition from other mobile chip-makers. Intel’s third quarter result is scheduled to be declared on Oct. 16. If Intel does not come up with innovative products for the mobile market soon, investors will lose faith in the company and it is quite possible that we may see the fall of the giant in the near future. Intel will have to push hard to capture back its losing market share. But with years of experience in chip architecture designing and chip manufacturing, Intel knows what to offer and how to lure customers to maintain its leadership position in the market.
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