Intel chief executive Paul Otellini said in an earnings conference call today that the world’s biggest chip maker has never been in a better position to address the full spectrum of the computing chip market. But he also acknowledged that smartphone chip sales are not yet generating significant revenues for Intel.
That’s a problem as tablets and smartphones are growing at a fast clip and hurting demand for PCs. Still, Otellini, who is retiring next month, said he remained optimistic about Intel’s competitive position. Intel, after all, is still generating $2 billion a quarter in net income.
“We now compete wherever there is computing,” he said in his last conference call with analysts.
Some of the PC makers that use Intel chips, such as Dell and Hewlett-Packard, have suffered. But Otellini said that some Intel customers are thriving as well. He pointed to Apple and Lenovo as examples of big computer makers that are thriving.
Otellini said that ultrabook (thin, light laptops) prices will drop between $599 and $699 in the fall, while touch-enabled notebook computers could drop even lower to $199 to $499. (Android tablet prices could be half of those prices). These ultrabooks will sport new low-power microprocessors, codenamed Haswell. Later in the second quarter, Intel will begin shipping Haswell chips, which will enable powerful laptops and tablets.
When it comes to chipmaking technology, Intel is still the undisputed leader, Otellini said. He said that Intel has shipped more than 100 million 22-nanometer chips (the lower the nanometer figure, the more complex and sophisticated the chip). Meanwhile, rivals in the industry have yet to ship a single 22-nanometer chip.
“We put more distance between us and the rest of the semiconductor industry than ever before,” Otellini said.
But being able to make the tiniest chips and to fill the factories with orders are two different things. Intel saw a reduction in excess inventory in the first quarter, and it anticipates an expansion of demand in the second half of the year thanks to expectations for a stronger worldwide economy. Enterprise computing sales may grow in part due to the stronger macroeconomy.
At the same time, Intel reduced its risks by cutting capital spending for the year from $13 billion to $12 billion. It did so by reclassifying short-term spending for the long term. Intel anticipates shipping its first 14-nanometer chips in the second half of 2013.
Intel will be able to diversify its manufacturing by adding foundry customers, or outside companies such as Altera that will use Intel’s factories to produce Altera-designed chips. In a “crawl, walk, run” strategy for the foundry business, Otellini said, “We are past crawling.”
Intel had no update to offer on its search for a new CEO. Otellini, 62, is retiring earlier than Intel’s mandatory retirement age of 65.
Otellini said he is “passing the baton.” But he added, “I know Intel’s story is nowhere near completely written.”
Chief financial office Stacy Smith noted that smartphone chip sales are still not moving the needle in the overall revenue picture.
Patrick Moorhead, analyst at Moor Insights & Strategy, said, “Once again, Intel managed to do better than and guide better than expected. This is driven by strength of the scale out data center and HPC server business and from a strong Haswell reception. Haswell could be the first Intel chip that provides PC performance in a thin tablet form factor. “
Market researcher IDC reported last week that first-quarter PC sales dropped 13.9 percent — the biggest quarterly fall in PC industry history — in the first quarter as consumers shifted their purchases away from PCs to mobile and tablet devices. But Intel said today its PC Client Group sales fell just 6 percent, and it did not revise its future earnings estimates downward.
Intel’s earnings per share were 40 cents (down 25 percent) on revenue of $12.60 billion. Analysts expected Intel to report net income of 41 cents per share on sales of $12.61 billion. And before the results, analysts were looking for earnings of 40 cents on sales of $12.9 billion for the second quarter ending June 30. Intel now expects sales of $12.9 billion, and gross profit margins of 58 percent.
Intel has been expecting low single-digit revenue increases for 2013, with gross margins at 60 percent. Those expectations remain unchanged. Capital spending was previously targeted at $13 billion, but that has now been revised downward to $12 billion.