November 17, 2009 / 3:41 PM / 8 years ago

Intel sees corporate PC recovery in 18 months

4 Min Read

SANTA CLARA, California (Reuters) - Intel Corp's (INTC.O) chief financial officer said the chipmaker is on track to meet its fourth-quarter outlook and said a recovery in corporate spending on PCs could happen in the next 18 months.

"I think the ingredients are being put in place that will lead to a PC refresh cycle in large enterprises," Stacy Smith told Reuters on Friday, adding that when the buying starts, it tends to include a lot of demand.

"The question is: is that the second half of 2010, is it 2011?" Smith, 47, said in an interview at Intel's headquarters in the heart of Silicon Valley. "I don't think anybody can tell you they know the answer to that question."

Analysts have said that Microsoft Corp's (MSFT.O) release of its Windows 7 operating system last month could trigger demand for new personal computers, but that it would take time due to the weak economy.

Smith said Windows 7 has had only a "slight net positive" impact so far in the fourth quarter, which is seasonally strong due to the end-year holiday shopping season.

"For the PC market, or for the segment of the market we play in, we would typically see a fourth quarter that's up about 7 percent in terms of revenue," he said. "That's the mid-point of our guidance and everything we've seen so far is consistent with that guidance."

Intel, whose microprocessors are found in 80 percent of the world's personal computers, has forecast fourth-quarter revenue of $10.1 billion plus or minus $400 million, and said gross margin should be 62 percent plus or minus 3 percentage points.

The company blew past Wall Street forecasts when it announced third-quarter earnings in October, setting the stage for a PC sector recovery.

Smith said spending on server hardware has remained relatively strong, with much of the rest of coming from consumers.

Phones Stopped Ringing

During the recession, Intel had seen an "extraordinary falloff" of business in the fourth quarter of 2008 and the first quarter of this year, leading the supply chain to react quickly, Smith said.

"We saw that as this kind of bullwhip effect where the phones just stopped ringing and the order desk just went quiet," he said.

Throughout the economic downturn, the one bright spot in the PC industry has been netbooks, which are mini-laptops.

While netbooks typically sell at lower prices than their laptop brethren, Smith said Intel's Atom chips -- which are designed for use in smaller mobile devices -- have helped to solidify some of the company's long-term outlook.

"A year ago, I would have been much more vague, or much less convinced in my conviction that the gross margin profile would have been the same," he said, speaking of the company's Atom chip. "As we've ramped and as we've seen the market tick up, I have a much higher level of confidence."

While Intel forecast its fourth-quarter gross margin of 62 percent, plus or minus 3 percentage points, an Intel spokeswoman said on Monday the company's historically normal corporate gross margin is between 50 percent and 60 percent and likely will not change for the next five years.

"When I look out across the next five years in my crystal ball, I don't see a gross margin profile that's different from the profile we've seen in the past five years," Smith said in the interview.

Intel's factory utilization rates have begun to return to normal, from historically low levels during the downturn. The company is returning to its targeted "sweet spot" range of 80 percent to 90 percent, the executive said.

Shares of Intel closed up 0.71 percent at $19.82 on Friday, having gained 64 percent from their year-low in February.

Reporting by Ian Sherr; Editing by Tiffany Wu, Matthew Lewis, Gary Hill and Carol Bishopric

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