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Thursday April 19 01:15 PM EDT
Corporate IT nonplussed by Intel's optimism
By Ken Popovich, eWEEK
Despite reporting a whopping 82 percent drop in profits Tuesday, Intel Corp. (NasdaqNM:INTC - news) executives expressed optimism that PC-related sales have "bottomed out" and projected microprocessor shipments will rebound during the second half of this year.
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But corporate customers, who are still trimming expenses amid an ongoing economic downturn, say they won't be shopping for new high-tech hardware anytime soon.
"Like a lot of other businesses, we've been focusing on cutting costs more recently," said Joel Salamone, senior director of technology at The Motley Fool Inc., in Alexandria, Va. "So I don't think there will be any interest in adding or upgrading equipment until the economy turns around, possibly next year."
Other large corporate buyers agreed.
"Last year, we bought over 1,000 PCs. This year, we're static, and I think we're going to be static for another three years," said Bob Cancilla, director of corporate systems planning for Republic Indemnity Co. of America, in Encino, Calif.
"I think the heyday of going out and buying a bunch of PCs is over," Cancilla said, contending that companies are becoming increasingly skeptical of the value of upgrading systems.
"We have millions of dollars invested in this equipment," he said. "Until something really revolutionary hits that brings in new and different applications from what we're doing, I think that you are going to see the whole Intel-based world come to a screeching halt."
'Take it with a bucket of salt'
While Intel's optimistic PC outlook offered a glimmer of hope for a financially battered industry, the giant chip maker's recent forecasts have proven to be less than accurate.
In fact, Intel has had to warn of lower-than-expected profits in each of the last three quarters.
"I think you've got to take what they say with a bucket of salt," said Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray in Minneapolis. "I mean, their forecasts have been off as much as 50 percent over the last four quarters."
Besides, there's still no solid evidence that the hoped-for rebound will come this year, Kumar said.
"I don't think there's any catalyst for PC demand to pick up significantly in the second half," he said. "PC refreshment is one of the lowest priorities for IT spending."
Nevertheless, Intel executives said the company's own indicators show that the worst is likely over for the PC business, although Intel added that the outlook for the networking and telecommunications business remains unclear.
"We believe that our PC-related businesses have bottomed out and are planning for a seasonally stronger second half," said Paul Otellini, Intel executive vice president, in a conference call with market analysts yesterday.
Intel's comments contrasted sharply with its first-quarter earnings numbers reported Tuesday that showed the company's income has plummeted.
For the quarter, Intel reported earnings of $485 million, or 7 cents a share, a sharp drop compared to the $2.7 billion, or 39 cents a share, it recorded last year.
While Otellini said Intel's revenues will be flat in the second quarter, he predicted that sales of PC-related products would rise again during the third and fourth quarters as they traditionally have done.
"We're not projecting a return to historic growth levels," he said, "we're projecting a return to normal seasonality off of a new business level."
In large part, Otellini said overseas markets, where sales have slowed but are still growing, will help fuel a rebound in the second half of the year.
"I think we are all kind of shell-shocked by the U.S. phenomena right now," Otellini said. "But when you get outside the U.S. it's not nearly as bleak in terms of purchases, confidence and sales levels."
Big change of heart?
The comments stand in stark contrast to Intel's remarks just a month ago when it warned that its earnings would fall short of projections.
"Right now, I really can't look at the worldwide, or Intel, economy and give you a lot of hope," Andy Bryant, Intel's chief financial officer, told analysts during a March 8 conference call.
Intel's promising projection about the second half of the year doesn't really come as a surprise, said Eric Rothdeutsch, a market analyst with Robertson Stephens in San Francisco.
"The second half is always better than the first half, so it's not like they're going out on a limb," he said.
But while history may be on Intel's side, one IT manager said the current economic environment doesn't bode well.
"Top management is really looking to shave costs anywhere it can," said one IT manager at a California defense contractor who asked not to be named. "Right now, dollars are so tight we're just worried about saving people's jobs, let alone buying new equipment." |
