Paul Otellini, the President and Chief Executive Officer of Intel, addressed a lunchtime crowd at the Goldman Sachs Technology and Internet Conference in San Francisco yesterday. He provided key insight into Intel's status and future business directions.
According to Otellini, CPU inventories are low right now, as Just-In-Time inventory systems have done away with huge warehouses of computers. Intel is seeing a more predictable number of orders from OEMs right now, indicating a stabilizing market. There is currently not enough inventory to support an uptick, as Intel has reduced their production.
Intel expects a lot of sales from the global stimulus packages being unveiled. "There's a lot of money that's about to be spent", said Otellini, and he was confident a lot of infrastructure and security upgrades will mean new CPUs.
PCs aren't a discretionary purchase anymore; it is now viewed as providing essential services to people. If a computer breaks, most people aren't going to wait until the recession ends to buy a new one. Some 350 million PCs are more than 4 years old, and Intel expects many of them will get upgraded to newer, cheaper models.
Replacement cycles are faster for notebooks, so the fact that there are now more notebooks than desktops being sold is good for Intel.
Intel is 18 months ahead of the rest of the industry with their 45nm ramp, and will extend that lead with 32nm and even more with 22nm production. He reiterated that he is interested in the 32nm process primarily because it lowers Intel's cost structure, which helps whether the economy improves or not, but puts it in a very good position for a market recovery. The Westmere family with Clarkdale and Arrandale is an example of that, lowering system costs by putting the graphics chip on the packaging next to the CPU.
Intel's market expansion plans will focus on three main areas: embedded, netbooks, and smartphones. Embedded is big money and a "very good margin business". Intel is rapidly shifting the Atom product line into the embedded market, where Otellini expects sales to triple in a few years from over a billion to over three billion.
Atom has less than half the performance of the lowest end Celeron product, and only a quarter of the performance of the Centrino 2 platform. Atom was not designed for notebooks, it has always been about netbooks and MIDs, and the pricing has reflected that.
Microsoft in had only 20 percent of the netbook market in Q3 2008, while Linux had 80 percent market share. This was turned around by Microsoft lowering their Windows XP Home prices to match the low-cost market, with the result being 80 percent market share for Microsoft in Q4. Otellini touched on Windows 7 Starter Edition being the right product for Atom, even though it only runs three applications concurrently.
The netbook business is the only point of growth for OEMs. Approximately 80 percent of netbook sales from ASUS and Acer were first time computer buyers coming in due to price or adopters buying a netbook in addition to another laptop. Intel wants to capture this emerging market, as they expect a lot of first time computer users as netbooks head toward the $200 price point. By growing the market to this segment, Intel will profit later as well when they upgrade their computers.
Lower priced products like Atom and Celeron have traditionally driven volume up, which Intel can absorb as they lower process geometries. Intel's P1268 32nm process will enable large volumes at a low cost. Yields are currently over a thousand die per wafer for Atom, and Otellini is very happy with Atom margins.
Continued in Part 2