As PC era fades, Intel needs new screensaver

 As tablets and smartphones draw more and more users away from PCs, Intel Corp is facing some difficult questions.

Intel, the world’s leading chipmaker, is used to being king of the personal computer market, particularly through its historic “Wintel” alliance with Microsoft Corp, which led to breathtakingly high profit margins and an 80 per cent market share.

But in the fast-growing and cut-throat mobile world, Intel is struggling, with its market share being less than 1 per cent of smartphones, trailing Qualcomm Inc, Samsung Electronics Co Ltd, ARM Holdings Plc and others.

That leaves some investors, already concerned about a lackluster global economy, asking if Intel’s invincibility has come to an end, and whether its profit and revenue growth potential may become much more ordinary.

When the company reports third-quarter results on Tuesday, one key figure to watch is gross margin, which analysts forecast at 62 per cent. While that is still the envy of smaller chipmakers, it has been declining from a record 67.5 per cent in late 2010, trend analysts expect to continue.

It is not all gloom for Intel. Its highly profitable server chip business, now almost a quarter of revenue, is growing quickly as Internet companies like Google Inc and Amazon.com Inc build more “cloud” data centres to offer services to consumers using mobile gadgets.

Shipments of cloud servers are expected to grow at an average annual rate of 31 per cent through 2015, much faster than overall server shipments, according to IHS iSuppli.
Pointing to an indirect benefit of mobile computing, Intel estimates that for every 600 new smartphones or 120 new tablets bought by consumers, an additional server is needed.

Still, the 44-year-old founding member of the Silicon Valley technology industry is struggling to find its place in a world moving quickly to mobile gadgets and social networks. Intel was slow to recognise how big a threat tablets would become, with executives describing them as complementary to PCs, a view shared by many others.

Increasingly, people are changing their tune. Global PC shipments are expected by analysts to decline slightly this year, the first annual drop since 2001. Intel has been promoting a new category of thin, “Ultrabook” laptops with touch screens enabled by Microsoft Windows. But the Ultrabooks launched so far have been criticised as too expensive, and manufacturers have shipped fewer than expected.

The release of Intel’s new Ivy Bridge processor this year was meant to speed up sales of Ultrabooks. But with premium-features like solid-state drives and touch displays, many models went for $1,000 or more, well above the $600-$700 price tag that analysts say is needed to gain traction.

Pointing to those high prices, IHS iSuppli recently slashed its forecast for 2012 shipments of Ultrabooks from 22 million units to 10.3 million units, with half of those expected in the next three months, coinciding with the launch of Windows 8.