Intel Faces Roadblocks Despite Hope In PC Sales - InformationWeek

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Infrastructure // PC & Servers

Intel Faces Roadblocks Despite Hope In PC Sales

The chipmaker will likely have trouble keeping average selling prices up as consumers and businesses look for bargains, rather than PCs with high-dollar processors.

Despite predicting an end to falling PC sales, Intel still faces a number of difficulties as consumers and businesses that buy the computers powered by the chipmaker's products claw their way out of the economic recession.

Intel on Tuesday reported double-digit drops in revenue and profits in the first quarter, but gave the tech industry a glimmer of hope when chief executive Paul Otellini said the world's largest maker of microprocessors is seeing signs that PC sales have "bottomed out." If true, then that would be an indication that the market may start to improve.

But the first sign that the tech industry is still in trouble was Intel's refusal to provide a revenue outlook for the second quarter, saying economic conditions were too shaky. That wasn't what investors wanted to hear. Intel stock as of about 12:30 p.m. Eastern time Wednesday was down 3.75% to $15.40, after falling to a low of $15.11.

Beyond just its stock price, Intel is likely to have trouble keeping average selling prices up as consumers and businesses look for PC bargains in order to spend less. That means more sales of low-priced computers with Intel's Atom, Celeron, and low-end Core 2 Duo processors versus high-end systems featuring the company's more expensive Core 2 Duo and Core i7 processors, said John Spooner, analyst for Technology Business Research.

"We believe that the new realities of the market will exert considerable pressure on Intel’s processor average selling prices as end customers, both businesses and consumers, look for the greatest bang for the buck," Spooner said in an e-mail.

Indeed, Intel reported that average selling prices in the first quarter were flat from the previous quarter. If ASPs fall, then the company could struggle to increase revenue and profitability.

But Intel believes that higher unit shipments of its inexpensive products will make up for the difference in their lower price. For example, sales of mini-laptops, or netbooks, which primarily use Intel's Atom processor, are expected to show double-digit growth this year. The systems' popularity stems from their very low price of less than $500, with many machines selling as low as $300.

Nevertheless, it remains to be seen whether that strategy will be successful. "The chipmaker faces the difficulty of significantly boosting shipments in a market that is still extremely fragile," Spooner said. "The bottom could drop out again should consumers, whose notebook purchases have helped to support the fledgling market turnaround thus far, suddenly retrench."

The only sure way Intel will get back on track financially is when businesses begin buying PCs en masse once again, a scenario that may not happen until next year. PC shipments overall this year are expected to fall by 4.5% from 2008 to 282 million units, according to IDC.

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