Intel, the world's biggest maker of chips, is feeling pain from a global downturn in demand for personal computers. While Intel makes many kinds of chips, the ones that go into PCsare among its most profitable. The PC market is eroding, however, because of economic weakness and a shift to devices likesmartphones and tablets.
Intel has fought the trend by investing in new styles of PCs that work more like tablets, by selling chips for the servers in big cloud computing data centers that connect PCs and the new devices, and by finding new uses for more powerful chips. So far, little of this has worked.
"The problem is demand," said Ken Dulaney, vice president at Gartner, a technology research firm. "People are buying other things with their disposable income for electronics, like tablets, televisions, smartphones, e-readers and gaming devices. Intel is trying to take its technology to these consumers, but this is a transition period."
Almost no one is counting Intel out, but the rough market transition will not end soon. In a conference call with securities analysts, Paul Otellini, Intel's chief executive, said that he expected PC demand would grow at half the normal rate in the fourth quarter.
At the same time, he expressed optimism about demand because of a new computer operating system from Microsoft called Windows 8 that will be released Octber 26. Over 100 new, lighter types of PCs with tablet-like functions would be produced by computer manufacturers using Windows 8, Otellini said. That could renew demand in 2013.
"It's pretty hard to say that in good economic cycles we wouldn't get into normal growth," Otellini said. "The tablet is not the end state of computing."
The chip maker, based in Santa Clara, California, said net income in the third quarter fell 14.3 percent to $3 billion, or 58 cents a share, from $3.5 billion, or 65 cents a share, a year earlier. Revenue was $13.5 billion, down 5 percent from $14.2 billion a year earlier.
On September 7, Intel warned that third-quarter revenue would be $13.2 billion after earlier projections of $13.8 billion to $14.8 billion. Industry analysts were expecting earnings of 50 cents a share, according to a survey by Thomson Reuters. The stock, which fell about 3.5 percent in after-hours trading, closed in regular trading up 62 cents, or 2.85 percent, at $22.35.
For the fourth quarter, Intel projected its revenue would be $13.6 billion, plus or minus $500 million, and that its gross profit margins would shrink.
Last week the International Data Corp., a market research firm, estimated that the worldwide PC market contracted 8.6 percent in the third quarter. The smartphone and tablet manufacturers that Intel sells to tend to have more competition and lower volumes than those in the PC market, which is about 350 million units a year.
Intel has tried to revive the PC market with a small, thin design called the ultrabook, but so far this has been unsuccessful. Recently IHS iSuppli, a market research firm, forecast that just 28 million ultrabooks would be sold in the second half of 2012, down from an earlier estimate of 35 million units.
The pain was being felt by other chip makers, too. Last week AMD said its third-quarter revenue would fall about 10 percent from the $1.4 billion recorded in the second quarter. AMD was expected to lay off a significant number of its staff. Otellini did not indicate that Intel would be laying people off.
Away from PCs, which accounted for $8.6 billion of total revenue, Intel reported revenue of $2.7 billion in its data center group, an increase of 6 percent from a year ago.
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