The shift away from desktop PCs to smartphones and other smaller computing devices is having a big impact on a major player in the PC market. Chipmaker Intel today lowered its revenue expectations by $900 million for its Q1 earnings that will come out on April 14. It now says Q1 sales will be $12.8 billion, “plus or minus $300 million,” versus earlier guidance of $13.7 billion, “plus or minus $500 million.” It says the change was made because of weak demand for desktop PCs and economic conditions in specific markets like Europe.
“The change in revenue outlook is a result of weaker than expected demand for business desktop PCs and lower than expected inventory levels across the PC supply chain,” the company writes. “The company believes the changes to demand and inventory patterns are caused by lower than expected Windows XP refresh in small and medium business and increasingly challenging macroeconomic and currency conditions, particularly in Europe.” It added that its data center business is “meeting expectations” but it also cancelled all other outlook metrics until its earnings release.
The slower uptake in a Windows refresh is likely to have a knock-on effect for others in the PC hardware industry as well, as they too will have been depending on people upgrading their computers to keep up with operating system software. It will be interesting too to see the impact on Microsoft, as it implies that it will also be seeing slower-than-expected sales of its newer Windows software.
The company has been putting investment into areas like intelligent computing and wearables, in part to offset potential declines in other parts of its business, but also to help build out products and markets where its processors can live in the future.
This follows on from the company’s Q4 2014 earnings, when Intel disappointed Wall Street with its initial $13.7 billion outlook that already fell below their expectations. Currently the stock is trading at just over 4% below its opening price in the wake of today’s notice, at around $30.97 per share.
The PC business has been in a long decline for several quarters now, with Gartner among those predicting that tablets would overtake them sometime this year. However, as the tablet market has also apparently seen a levelling out of growth, it’s revised the outlook and even noticed a small uptick for sales of the larger computers.
Intel’s statement comes at a time when major companies are pressing ahead with smaller and lighter computers that are neither desktop PCs nor tablets or smartphones. Apple’s new MacBook — while inspiring some snarky incredulity — are doing away with ever more ports and other extras as it strives to distill the most useful parts of a computer for users. And yesterday Google debuted its newest Pixel Chromebook, its own take on keyboard-friendly computing for the future.
Intel further said it is holding gross margins, specifically the mid-point of the gross margin range to remain at 60%, “plus or minus a couple of percentage points, as lower PC unit volume is offset by higher platform average selling prices.” Expectations for R&D and MG&A spending and depreciation in the first quarter remain unchanged, it said. “All other expectations have been withdrawn and will be updated with the company’s first-quarter earnings report on April 14.”
The revisions do not include “business combinations, asset acquisitions, divestitures, strategic investments and other significant transactions that may be completed after March 12,” the company noted.