The weak outlook of Intel Corp. drove away all lingering hopes for the revival in the demands for PCs by the end of this year. Intel fourth quarter margins and revenue went through a setback thereby pushing their shares 2 percent lower than original.
The market scenario:
Intel Corp. and its rival group Advanced Micro Devices Inc. had already warned about the weakening demands for the PCs due to a staggering global economy and the high rise in the popularity of products like tablets from Apple Inc. The iPad from Apple Inc. that were at one point of time dismissed as a kind of niche device are now leading the market thereby portraying a fundamental shift in the approach of customers towards computing. The weak global economy affects Intel badly thereby reducing their sales significantly in the fourth quarter of the year. In some of the recent quarters, the server and data center business of Intel Corp. that is highly corporate focused had definitely helped in the offset weak sales of PCs. But the Intel fourth quarter margins however show that this division of Intel Corp. has also failed in its efforts as the enterprises now seem to buy very few servers.
According to an analyst with the Evercore Partners, Patrick Wang, data center has since long been the base of PC business, but looking at the fall of the Intel fourth quarter margins it seems that the whole outlook has changed. With the slowing of economic growth in China and its struggling condition in both Europe and the United States, the global shipment for the PCs is most likely to fall towards the end of this year. There the weak global economy affects Intel and shows a drop in their business along with the worldwide market since the year 2001. According to the records of Intel, their data center business, which includes the selling of server chips and some other equipment to the government and the companies, grows by about 6 percent every year. But the Intel fourth quarter margins this year showed that even this business was down by 5 percent from the previous quarter.
Intel's way of approach:
The weak outlook of Intel Corp. has also cost its profitability since the company is looking to reduce its inventory of processors by stagnating the excess capacity at some of plants. Intel fourth quarter margins are being foreseen at 57 percent or 58 percent on a non GAP basis adding or subtracting a few percentage points. The weak global economy affects Intel and almost two thirds of its decline in the margins accounts for the charges on the excess capacity. The weak outlook of Intel Corp. also results in the company using only half of the capacity of its factories. In order to inject some new life into the PCs Intel is promoting a new line of thin laptops that are backed by touch screen facilities and enabling the upcoming Windows 8 operating system. The weak outlook of Intel Corp. resulted in the shares of the company to fall by 2.85 percent to $22.35.
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