Intel’s server business spurs chip firm’s growth

We listened to the post second quarter results at an Intel teleconference yesterday night – the chip firm reported record revenues and profits and it’s crystal clear from the call that server revenues are kicking in again.

Intel CEO Paul Otellini said that his company’s revenues were continuing to run ahead of general economic growth. He said that in the second financial quarter, Intel benefited from a “broad based return” of sales into the corporate and small-medium business market.  There was a “surge in demand” for data centre servers.

Otellini said that many analysts were projecting growth of 20 percent for Intel – and he saw the same trend. In the second quarter there was a return of buys from corporations, to some extent due to enterprises migrating to Microsoft Windows 7. Intel’s data centre group had revenues of over $2 billion and operating profit of over $1 billion.

And the situation is solid in the different geographies, including Europe. Otellini said that configurations of machines in Europe are changing as distributors build machines to order, with some removing discrete graphics cards or supplying less memory to keep prices stable. “In Europe, you had the volcano and the debt crisis, and if you look through the lens of that smoke, computers are important. Now corporations are buying in addition to consumers. Computers are fundamental to people’s lives these days.” Every geography was beyond the seasonal norm, he said. Sales were up, particularly on the commercial or enterprise side of the business.

The high gross margin is, according to Intel, because of a richer mix of products and average selling prices for servers are higher. There were more server shipments than any other microprocessor type.

Intel's HQ in Santa ClaraOtellini said that the third quarter was likely to be robust. Intel wasn’t planning for any seasonal softness, he said. “It’s hard to find any softness in a 20 percent number.”  He said that while around 70 percent of Intel’s business was consumer, there were trends pushing server sales, including the need for return of investment and capacity. Machines are costing more to keep on a company’s books than they were worth. “You’re starting to see machines that are four or five years old getting refreshed,” he said.

Sales of netbooks are not going to be the main factor for Intel’s Atom family in the coming quarters, Otellini said.  He said that the “new growth” for the Atom was going to be for the embedded market and for Google TV. A number of companies, he said, are moving towards set top boxes and DVD players using the Atom processor.

As for tablets, Otellini said that the industry was in the early stages – tablets are an additive category and there’s only one shipping right now. “I haven’t changed my views since the launch of the iPad. They’re additive to the market. I don’t see tablets cannibalising the PC market.” He said that Intel is optimistic about tablets and at the June Computex there were over 30 tablets being shown off based on the Atom microprocessor.