Tricky times for techies?

As Intel, like IBM, posts strong quarterly results, what do the coming months hold for the tech sector?

by
Last Updated: 31 Aug 2010

It’s been a good few months for Intel: the US chipmaker said last night that it made better-than-expected profits of $2bn in the three months to September, a 12% rise on last year. This was a third-quarter record for Intel, suggesting that business is holding up pretty well despite the recent turmoil. After slimming down significantly in the last couple of years, Intel is probably better-placed than most to weather the storm – but if the world’s economy is going into meltdown, won’t we be spending less money on computers?

Well, nobody seems quite sure. Intel was pretty coy about its prospects for the coming months, warning that it was impossible to tell how far the financial crisis would affect demand. But it’s revised its fourth-quarter forecast down slightly: it’s now expecting sales to fall somewhere between $10.1bn and $10.9bn (a pretty huge range), while margins may also be squeezed as it sells more of its new lower-cost Atom chips, which are used in smaller computers and mobile devices.

Indeed, it’s a pretty mixed picture throughout the tech sector at the moment: some (like IBM and Intel’s fellow chip-maker Altera) seem to be holding up well, others seem to be struggling. One big advantage for Intel is that it’s spent the last two years ‘rationalising’ its workforce, a.k.a. cutting 20,000 jobs. It’s also been reducing manufacturing costs thanks to its whizzy new nanotechnology (which basically allows it to cram even more transistors into an even smaller chip, making them faster but cheaper to run), boosting margins to nearly 60%. As a result, it now has about £12bn nestling safely in the bank (well, as far as any bank counts as safe these days).

Intel’s other advantage is that nearly two-thirds of its business comes from Japan and Asia-Pacific – countries that should get off more lightly from the global slowdown. Earlier this week analyst group Gartner predicted tech spending will be pretty much flat in North America during 2009, and could even decline in Europe – so Asia is likely to be the big driver of growth for tech companies in the next year.

On the other hand, even if businesses and consumers do cut back on their spending next year, we’re not likely to fall out of love with our computers. 'Computers are no longer a luxury, they're a necessity,' says Intel’s UK boss Graham Palmer. 'We have a very personal relationship with these devices now. We don't see that going away, despite the uncertain market future.'

And since the latest technology can actually help businesses work smarter (for instance, Intel’s new dual-core processors basically allow it to squeeze up to six ‘brains’ on one chip, thus improving efficiency), companies may be willing to keep investing through the downturn – assuming they have cash in the bank, that is. ‘You can’t save your way out of a recession,’ as Palmer told us cheerfully today.

Other companies in the sector will hope he’s right...


In today's bulletin:

Recession fears spark another big sell-off
Audit office assets frozen in Iceland
The Queen hits Google HQ
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