Intel lowers forecasts, retains focus on Atom and Wimax

Caroline Gabriel/RethinkWireless
09 Jan 2009

Intel has lowered its fourth quarter revenue forecast for a second time, with the fall in PC sales the main, and predictable, cause. The chip giant said Q4 revenue would be $8.2bn, down 23% on a year earlier, down from November guidance of $9bn and a previous forecast of $10.1bn-$10.9bn.

The company blamed "further weakness in end demand and inventory reductions by its customers in the global PC supply chain". Gross margin is likely to be at the bottom of previous guidance, around 55%, said the company. At least one analyst speculated that part of the shortfall might actually be down to a success - the better than expected sales of the Atom low power platform for netbooks and mobile internet devices (MIDs). Though these are rare growth segments, and so key to Intel's strategy, they also carry lower prices and margins than conventional PC processors.

Robert Castellano, president of The Information Network, told EETimes that many consumers probably purchased low cost netbooks in Q4 who might otherwise have splashed out on a fully blown notebook. Assuming a price difference of at least $200 each between Atom processors and Intel's more expensive Penryn for notebooks, Castellano estimates that Intel could have lost $1.14bn in revenue in 2008 from the shift, and could stand to lose another $2.16bn in 2009.

Despite the impact on margins, though, this is part of a necessary transition by Intel towards new markets, given the long term but inevitable decline of the traditional PC in favor of a huge range of client devices for work and leisure. Atom is just the start of an aggressive roadmap to ensure Intel remains dominant in all those form factors, hence its intense interest in ubiquitous wireless in the past few years, and its potential assault on the cellphone chipmakers.

Intel will also take a non-cash charge of $950m on the lowered market value of its stake in Clearwire, which will also increase the expected loss in Intel's equity investments - this is now likely to be $1.1-$1.2 billion rather than $50m as previously expected. Intel will cut R&D spend by $200 million to about $2.6 billion.

Other investors will also take charges on the reduced value in Clearwire stock - Time Warner Cable's will be about $350 million, while Comcast has not revealed the scale of its own writedown. Clearwire's stock has fallen by about 60% during the past six months but this did not prevent Intel, Google and three cablecos investing in it, at the point of its merger with Sprint's Xohm unit - a sign that the Wimax operator represents a long term strategic move for the participants, all of which are looking to lead the US shift towards mobile broadband and converged web services.

In this context, short-term drops in the value of an early stage carrier are to be expected in the current financial climate, but will not faze its backers, which need the greater rewards that success in the mobile internet will bring after the downturn. And the charges are certainly dwarfed by those taken by operators and their suppliers during the early days of 3G.

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