Intel results suffer

Would-be fashion house Intel’s attempts to diversify into the sale of bags does not appear to have paid off – with the company predicting a weak fourth quarter.

Intel had a cunning plan to reduce its dependence on chips and start selling fashionable accessories, but this appears to have been as effective as sticking clogs on an olympic sprinter.

Chipzilla had warned that there would be weak demand for PCs, thanks to a troubled global economy. The company had offset some weaker PC sales with its corporate-focused server and data centre business but in the third quarter this dried up too.

Patrick Wang, an analyst at Evercore Partners, told Reuters that the data centre had been the rock everyone had leaned on, but now enterprises and companies are rationalising their year-end spend.

The other rock was the economic in China,  which is slowing. Meanwhile, Europe and the United States are seing global PC shipments declining slightly this year, the first annual drop since 2001.

Intel said the data centre business grew six percent year over year in the third quarter, although it was down five percent from the prior quarter.

Profitability will also take a hit, as Intel idles excess capacity at its plants in an effort to reduce inventories.

Profit margins are also falling to 57 percent when analysts expected gross margins of about 62 percent for the current quarter.

Chief financial officer Stacy Smith said about two thirds of the anticipated decline in margins will come from excess capacity charges.

Intel is also running its factories at less than 50 percent of their capacity, redirecting unused space and equipment to be used on more cutting-edge production lines still being built, the company said.

As for Ultrabooks, these have been expensive all round. Pricey to market, costly to build, and, considering the wider economic situation, undesirable to buy at sky-high price points. Regardless, Smith said the growth is expected in the PC segment, and it is Smith’s belief that innovation in Ultrabooks will act as a catalyst.

Some of Intel’s hopes are being pinned on the release of Windows 8, which it and a long list of vendors are praying will kick start a lot of PC sales.