April 27, 2006 4:57 pm

Intel sees PC market slowing

Intel on Thursday forecast slowing growth for the personal computer industry this year and reported that several million of its microprocessors had piled up with its customers over the past two quarters.

In an admission that Intel’s execution was as much a problem as industry conditions, Paul Otellini, chief executive, told an analysts meeting in New York that work was under way to “restructure, re-purpose and resize” the company to set its course for the next few years.

Mr Otellini had announced a “wholesale look” at the world’s biggest chipmaker at its quarterly results presentation last week, when Intel announced profits had fallen by a third. He gave analysts more detail, saying “no stone will be left unturned … we will see a leaner, more agile and more efficient Intel Corporation after the end of this project”.

Mr Otellini said it would be too simplistic to cut its 100,000-strong global workforce. There would be a deep analysis over 90 days that would tackle non-performing businesses, market conditions and employee productivity.

“You have the full commitment of the management team to make Intel a different type of company, a more nimble company,” he said.

The review will be the biggest since the company was transformed in the mid-1980s from a memory chip company to one focused on microprocessors. Intel is promising a $1bn reduction in costs this year and a $300m cut in capital spending.

Intel expects sales to fall 3 per cent in 2006 after three years of double-digit growth and at a time when the rest of the industry is performing strongly. Its stock has fallen more than 20 per cent so far this year to become the worst performer on the Dow Jones Industrial Average.

Intel shares were up 2 per cent to $19.87 in midday trading following Mr Otellini’s comments.

The company holds more than 80 per cent of the market for the dominant “x86” family of PC microprocessors but has lost share to Advanced Micro Devices in recent quarters. Thus far, it has also failed to penetrate significantly the high-growth market for mobile phone chips, led by Texas Instruments.

Mr Otellini said Intel saw PC growth being in the single digits in 2006 – lower than analysts are currently predicting and after three years of double-digit growth for the industry. Its customers had a backlog of several million of its microprocessors in their inventories, but he expected this to be burnt off by the second half.

Intel expects to stage a comeback in the second half with three new processors, codenamed Woodcrest, Conroe and Merom for servers, desktops and notebook PCs and released in June, July and August respectively. They feature two cores or “brains” inside Intel’s first new microarchitecture in five years.

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