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Despite a challenging first quarter and weakening consumer demand, strong business spending and emerging markets are driving demand for Intel’s traditional businesses. Company executives are expecting the momentum to continue for the rest of 2011 as the company strengthens its presence in the mobile device segment.
During an April 19 conference call with analysts and journalists announcing the chip maker’s record first-quarter numbers, Intel CEO Paul Otellini said the shift of critical business applications to the cloud drove IT business spending. “Cloud build out” drove demand for high-end servers, storage and networking products for big centralized data centers.
Intel had a record first quarter that kicked off a strong start to 2011, thanks to continued strong enterprise sales despite a softening in consumer markets in the United States and Western Europe. In the first quarter, revenue came in at $12.9 billion-up 25 percent over the same period in 2010-with net income hitting $3.3 billion, a 34 percent jump.
Intel continued its strong performance from the end of 2010, as revenue and net income were up 12 percent and 3 percent, respectively, compared with fourth-quarter 2010 results.
Intel is taking advantage of the explosion of devices that can connect to the Internet. “We not only participate through selling our products into these device categories, but we also profit from the wide array of products that we sell in the build out of the data center capacity required to serve all of these devices,” Otellini said.
The data center group saw quarterly revenue rising 45 percent over the fourth-quarter 2010 and 65 percent from first-quarter 2010. Otellini said the group is expected to reach $10 billion in revenues for 2011.
Despite initial problems with the Cougar Point chipset, Intel appears to have recovered nicely, reporting strong demand for its Sandy Bridge processors. A technical error in the chipset led Intel to issue a product recall, fix the problems and then reissue the product. Intel recovered from the setback faster than the company expected in January, according to company executives.
Calling early demand for Sandy Bridge “outstanding,” Otellini projected the ramp to continue on a very sharp growth trajectory for the rest of the year, with unit shipments expected to “more than double” from the first quarter to second quarter. “I believe that this is the very best product Intel has ever delivered to our customers,” Otellini said.
Intel Expects Continued Growth in PC Market
Intel expects to see continued growth in the PC market, especially in emerging markets, despite several analyst reports predicting a slowdown in global sales. The global PC business will approach 400 million units in 2011, according to Otellini.
“I want to be clear that our views differ from some of theirs,” Otellini said, referring to the research firms. Intel is projecting “low double digit” growth for the PC segment in 2011, based on “early sell-through strength” and “great reception to Sandy Bridge.”
Even with strong enterprise demand as businesses refresh their hardware, Intel still has its sights set on the market for tablets and smartphones. The company continues to invest and develop new products for this segment and had quite a number of tablet-centric announcements recently at various conferences.
In fact, Intel launched Oak Trail, a platform designed specifically for tablets, just last week. Otellini said Intel will have tablet platforms that can run Windows, Android and MeeGo.
While Intel is no longer working with phone maker Nokia, the company is focusing on carriers that want their own devices as well as on handset manufacturers. Otellini said he would be “very disappointed” if Intel-powered devices didn’t hit the market “12 months from now.”
Intel closed its $1.4 billion purchase of Infineon’s wireless business in January and its purchase of security giant McAfee in February. Stacy Smith, Intel’s CFO, said the combined acquisitions added half a billion dollars to Intel’s bottom line.
Intel also did not see “any unusual changes or fluctuations” to its backlog after the earthquake in Japan, and no major disruptions to supply lines are expected.
The company is still on track to begin production on the new 22-nanometer silicon process technology by the end of the year and will be increasing investment in both 22-nm and 14-nm capabilities, Otellini said. With increased focus on notebooks, tablets and smartphones, Intel sees “a need for more platform features to be integrated into the microprocessor, taking advantage of our leading-edge silicon capability for power management, performance and smaller, lighter devices,” Otellini said.