I listened to Intel’s 3Q earnings conference call yesterday afternoon.
The company was upbeat, with good reason. The results were higher both than analysts’ estimates and the company’s guidance, which had been upwardly revised during the quarter.
The positive news for the overall IT industry is that demand for INTC’s products was significantly above seasonal patterns in all regions of the world–except Europe, where demand was only slightly above the seasonal norm. INTC expects this above trend performance will continue into next year.
Consumers are the big PC buyers. Server demand from corporations and from “cloud computing” middlemen is also good. The big surprise, to me anyway, is that INTC is seeing companies warming up to buy new laptops and desktops next year. Why? Their existing machines are on average 5-6 years old, so repair costs are rising. So, too, are support issues for the XP operating system they’re running.
Normally, it’s consumers, not companies, who buy machines where a new, potentially buggy, operating system is installed. But apparently corporations are willing to take a chance on Windows 7. My guess is this is more a reflection of how badly the old machines currently in use are, than a ringing endorsement of the new MSFT product.
I’m no INTC expert. I’ve generally preferred to own smaller, niche companies with faster earnings growth prospects. But the company gives the impression of being much better organized than I remember it. And the fact that the company has tightened its belt significantly while beginning to experience sharp increases in demand for its products suggests we’ll see positive operating leverage from the company for a while yet. I can understand why investors might prefer to hold INTC shares while it’s growing so rapidly rather than take the risk of owning a smaller, less well capitalized firm.
I was also to interested to hear some of the sell side analysts asking questions on the call express skepticism about the durability of the netbook category. Their idea seems to be that consumers have traded down to netbooks during recession and that they will trade back up to traditional laptops as their economic circumstances improve. I think that’s wrong–that netbooks address a new market segment–that, by the way, is growing very fast and will continue to do so. INTC agrees with me (for whatever that’s worth).
In fact, INTC has recently announced that it’s configuring its Atom microprocessors for netbooks so they’ll work with Linux as well as MSFT operating systems, and will open apps stores (like APPL’s) in conjunction with Taiwanese netbook makers.