In an open letter, Intel CFO and interim CEO Bob Swan claims that his firm is seeing “surprising” growth in its PC business this year. And by surprising, he really means modest.
“Together as an industry, our products are convincing buyers it’s time to upgrade to a new PC,” Mr. Swan writes. “For example, second-quarter PC shipments grew globally for the first time in six years.”
Looked at objectively, this isn’t much of an accomplishment: The PC market grew by just 1.9 percent in that quarter. And that “growth” came on the heels of six straight years—or 24 consecutive quarters—of often massive shortfalls. By the time those six years concluded, the PC business emerged at a diminished size that is just two-thirds the size it was at the time of its peak.
My own take on the future is that we will see small bursts of cyclical growth surrounded by a sales flat-lining or even decline overall. And the one major upgrade cycle to come—businesses upgrading past Windows 7 to Windows 10—will not be comparable to past upgrade cycles, according to HP. I do believe that this Windows 10 upgrade cycle will be the industry’s last hurrah.
And Intel is pretty much on the same page, at least for the short term.
“We now expect modest growth in the PC total addressable market (TAM) this year for the first time since 2011, driven by strong demand for gaming as well as commercial systems – a segment where you and your customers trust and count on Intel,” Swan continues.
The bad news, for Intel, is that it was apparently unprepared for this growth.
“The surprising return to PC TAM growth has put pressure on our factory network,” he writes. “We’re prioritizing the production of Xeon and Core processors so that collectively we can serve the high-performance [and most lucrative] segments of the market. That said, supply is undoubtedly tight, particularly at the [volume and] entry-level of the PC market. We continue to believe we will have at least the supply to meet the full-year revenue outlook we announced in July, which was $4.5 billion higher than our January expectations.”
I want to be clear about the verbiage I added above.
Intel here is breaking down its deliverables to the PC market into two groups: The expensive and lucrative but relatively small (by volume) market for high-end chips, and the inexpensive and less lucrative but very large (by volume) market for low-end chips.
“We are taking a customer-first approach,” he notes. “We’re working with your teams to align demand with available supply.”
In other words, Intel is saying that it will continue to deliver its more lucrative offerings as required by its own customers (mostly PC makers). And it will do as well as it can with its less-lucrative, low-end end products.
This is brilliant: By claiming that it is struggling to meet demand in a market that grew by just 1.9 percent in one quarter (again, after six years of losses), Intel is creating the appearance of much greater health. I assume its PC maker customers appreciate the 1.9 percent of extra effort required.
But I’m curious why this generated an open letter, and not a private communication to its customers. After all, Intel said on the same day that it has “chosen, and will continue to choose, to respond to Qualcomm’s statements [about Intel] in court, not in public”. Qualcomm’s referenced legal claims are on public record. Why would Intel be private there but take its manufacturing efforts for PC makers public?