Analysis: As PC era fades, good times may be over at Intel

Sun Oct 14, 2012 2:56pm EDT
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By Noel Randewich

SAN FRANCISCO (Reuters) - 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 percent market share.

But in the fast-growing and cut-throat mobile world, Intel is struggling - its market share is less than 1 percent 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 percent. While that is still the envy of smaller chipmakers, it has been declining from a record 67.5 percent in late 2010, a trend analysts expect to continue.

"If we're moving to mobile, which is a low-margin business, it's difficult to see where the high-margin business is going to be for Intel," said Michael Yoshikami, chief executive of Destination Wealth Management. "That's why we own Qualcomm and we don't own Intel."

Shares of Intel have fallen about 7 percent over the past year. Qualcomm, a leader in providing "logic chips" or processors for tablets, has gained 12 percent.

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 Inc build more "cloud" data centers to offer services to consumers using mobile gadgets.   Continued...

People walk past the Intel stand on the first day of the Gulf Information and Technology Exhibition (GITEX) at the Dubai World Trade Centre in Dubai October 14, 2012. REUTERS/Jumana ElHeloueh