Intel's healthy quarterly numbers indicate that things may be looking up for an IT industry battered by the global recession, according to analysts.
However, it also means that systems makers are betting that the second half of 2009 will look a lot better than the first half and are beginning to order parts to meet the hoped-for demand.
"It's an indication that the hardware OEMs think the PC industry is looking up," Rob Enderle, an analyst with the Enderle Group, said in an interview. "Intel is a bellwether of how the industry views the market, not a bellwether of whether [consumers] are going to buy."
Intel announced strong second-quarter numbers July 14, which helped drive up not only other IT vendor stocks, but also helped boost stock markets worldwide. In the second quarter, Intel had $8 billion in revenue and a $1 billion profit, though that profit swung to a loss when the European Commission's $1.45 billion fine for antitrust violations was factored in. Intel is appealing the fine.
Intel officials also were optimistic about consumer spending in the second half of the year, thanks to usual seasonal bumps and Microsoft's upcoming launch of its new Windows 7 operating system. They expect the momentum to continue for both consumers and businesses into 2010.
Executives with other IT vendors, including Dell and Microsoft, also said this week that they expect spending to begin swinging upward later in 2009 and into next year.
Enderle said most OEMs feel the same way, given Intel's numbers. They seem to be stocking up for an expected growth in demand, he said.
Brian Alexander, an analyst with Raymond James Equity Research, said Intel's strong numbers should indicate positive figures for Hewlett-Packard's PC business. In a report issued July 15, Alexander said he expects HP PC revenue to grow sequentially 3 to 5 percent in the second quarter.
He noted that Intel holds about 80 percent of the chip market, and that HP is about 20 percent of Intel's net income.
"Positively, Intel sees relative strength in consumer PCs, which is a higher margin segment for HP," Alexander wrote.
Roger Kay, an analyst with Endpoint Technologies Associates, said Intel is an important indicator for the rest of the IT space.
"The industry has been dependent on Intel's results," Kay said in an interview. "When people want to know what is going on in tech, Intel is at the fulcrum of it. ... Intel's rising tide does lift all the boats."
Intel released its numbers later the same day Dell had its annual analyst event. Dell's stock didn't move much during the days, but-like other tech vendors-saw its stock rise after Intel's announcement.
Similarly, Intel rival Advanced Micro Devices should see a bump when it releases its quarterly numbers July 21, Enderle said.
"If Intel's numbers increase, the uptick should impact AMD positively," he said, particularly given AMD's strength in some areas of the PC space and in mobile systems. "If AMD doesn't show good numbers, then they've got a serious problem."
Inventory is a key metric, Kay said. Intel officials talked about efforts to get their inventory under control after demand dropped late in 2008 and early this year. Inventory has been stabilized, and Kay said he is seeing indications that component manufacturers are beginning to see demand rise.
Alexander also noted the role of growing inventory in Intel's numbers.
"Overall, while Intel's results are encouraging, they are indicative of inventory replenishment in Q2 followed by seasonal patterns in Q3," he wrote.
The role of Windows 7 in driving PC sales growth is unclear. The OS is due out in October, but some analysts say the delayed refresh of PCs-as the economy worsened, many businesses and consumers opted to stay with their older systems rather than buy new ones-will have a larger role in convincing people to buy new machines.
"We do not see Windows 7 as a material driver of PC upgrades, but we acknowledge that the installed base is 3-4 years old, and this should drive above-trend-line growth in 2010 and 2011," Alexander wrote.
However, Microsoft officials have said they expect to sell 170 million units of the new OS within the few two months of its release as users look to migrate off of Windows XP or Vista.
Enderle said that as consumers buy Windows 7, they will bring it into their work environments, which will force IT to support it.
Kay said the OS will be one of three factors driving PC sales growth, with the other two being the age of the current systems and the return to capital spending as the economy picks up.