Intel Sees Record Q3 Revenues Driven by PC Market

Intel executives have been vocal in their belief that the PC market is healthy despite analysts' gloomy forecasts for that sector, and that it was the chip maker’s PC business that helped fuel record financial numbers in the third quarter.

Even with rivals experiencing tough going, Intel in the third quarter saw revenues hit $14.2 billion and net income of $3.5 billion, up 28 percent and 17 percent, respectively, over the same period in 2010. Much of that came off strong notebook PC sales, including sales in emerging markets, according to Intel President and CEO Paul Otellini.

Consumer PC sales in mature markets like the United States and Western Europe continued to be sluggish, but were more than offset by strong corporate sales and business in markets such as China, India, Turkey and Indonesia, Otellini said during a conference call with analysts and journalists Oct. 18.

“The global PC landscape is being reshaped,” he said, noting that China is now the world’s largest consumer of PCs, while Brazil is No. 3.

Emerging markets will continue to be an important segment for the company, which holds about 81 percent of the global processor space. According to Intel’s numbers, PC revenues grew 22 percent over the third quarter last year, and the business could jump as much as 10 percent in the fourth quarter. Overall, Intel is forecasting revenues for the fourth quarter to come in around $14.7 billion.

Intel’s financial numbers—which constitute the sixth consecutive quarter of record numbers—come at a time when Advanced Micro Devices, the world’s second-largest chip maker, has been forced to cut its third-quarter forecast due to problems in manufacturing partner Globalfoundries’ facility in Germany. AMD is scheduled to announce its quarterly numbers Oct. 27.

At the same time, executives with ARM Holdings, whose low-power chips run in most tablet PCs and smartphones, are taking aim at the PC market, and are developing chip designs to move up the ladder to compete more directly with Intel in both PCs and low-end servers. ARM officials announced Oct. 18 that it and manufacturing partner Taiwan Semiconductor Manufacturing Co. had taped out the first 20-nanometer multicore Cortex-A15 chip.

Otellini and Intel CFO Stacy Smith were asked several times by analysts about the challenge ARM represents to Intel in the PC space. Both were confident that Intel was in a better position than ARM, given the trends in the space, and they pointed to Intel’s strength in chip design and in manufacturing. Otellini said that as devices become smaller and the demand for lower power is coupled with the demand for better performance, the need for better transistor technology emerges. He noted Intel’s 3D Tri-Gate transistor technology, which promises both better power numbers and performance. It will make its debut in Intel’s upcoming “Ivy Bridge” chips, which will make their appearance in devices next year.

“While there is certainly some possibility of ARM’s incursion into PCs, I think it’s going to be minimal,” Otellini said.

Smith said Intel has a significant lead in innovation over its rivals.

“We’re solving these problems of physics,” he said. “We’re two years ahead of everyone else.”

Intel also is pushing its ultrabook concept as a way to both energize the PC market and expand its reach into the booming mobile-device space, currently dominated by ARM. First pitched at the Computex 2011 show in May, the concept calls for ultra-thin-and-light notebooks that offer the benefits of traditional PCs with the features of tablets, including long battery life and instant-on capabilities. They also will include touch capabilities and constant Internet connections.

Acer and Asus have begun selling the first of the ultrabooks based on Intel’s current 2^nd Generation Core Sandy Bridge chips; other OEMs are expected to follow soon. The big year for ultrabooks will be 2012, when systems based on the Ivy Bridge chips will appear, according to Intel officials. Consumers also will start seeing prices on the devices fall, Otellini said. The current ultrabooks come in at a low cost of $899, but he said he could see that dropping to $699 next year.

However, while Intel remained strong in the PC market, it still is trying to find a way into the mobile space. Sales of the company’s Atom chips, which are leading the charge into the tablet and smartphone markets, continued to struggle into the third quarter, falling 32 percent over the same period last year.

Otellini said smartphones powered by Intel’s “Medfield” Atom chips will start appearing in the first half of 2012, and he said Intel also will be a player in the tablet space. He also pointed to the expansion of Intel’s partnership with Google, which was announced last month at the Intel Developer Forum. The partnership calls for Google to optimize the Android mobile operating system for Atom. At the IDF show, the two companies showed off a prototype Android smartphone powered by an Atom Medfield chip.