View from Silicon Valley- What's good for Intel...
(c) copyright View from Silicon Valley, 2005. All rights
reserved.
By now we are all tired of the moaning and gnashing of teeth over
the "shocking" news General Motors is losing money and market share. Where I grew up, "What's good for GM is good for
the country," was gospel. GM was the company, "who put food on your table," as one childhood family friend chided
me some years later.
As tempting as it might be to kvetch over GM, this not the
real story from the last couple weeks. For the last 10 or even 15 years, what was good for Intel was also good
for Silicon Valley and our local economy. Given the current compulsion to off-shore, compounded by increasing
off-shore sales, one wonders if this is still a reasonable assessment?
Last week Intel won their quarterly game of beat the number and
a large sigh of relief was heaved across tech land. Sales were up, profits were up, margins were up. Sounds like
a perfect Trifecta, right?
Well, maybe.
"'This should
put a lot of bears to rest,' RBC Capital Markets analyst Apjit Walia said. The rest of the year for Intel 'looks solid,' he added. RBC rates the stock a 'hold.' "
Why
not a "buy" if Intel looks so "solid"? Is it too much to ask for these "analysts" to issue a
statement for which the actual words and their stock rating say the same thing?
William Fleckenstein further opined, "That Intel stretched to make this quarter can be seen by the fact that, even though its revenues were down 2% sequentially,
accounts receivable were up 7.5% and inventories were up another 7%."
Where were the inventory details in the touts about Intel's
great results? And why do many "analysts" still claim the semiconductor industry has burned off all its
excess inventory which is then hailed as proof growth will soon resume?
Unremarked upon was the statement, "Intel
sold more of its newest products, which carry a higher profit margin, as computer makers sold more laptops with wireless Internet
connections. Sales in China and India were especially strong, with Asian sales accounting for 47% of total revenue."
If you re-read the last paragraph, you can see it was
artfully written to imply Intel's high-margin products are selling particularly well in China and India.
Maybe Walia unerstands China's Lenovo has PCs starting at RMB2999 or ~$360, while India recently made a big production of wanting a $250 PC. These are the types of systems
driving volume sales in Asia. At these system price points, China and India were probably not sucking
up a lot of $600+ Centrino CPUs last quarter.
Another unremarked upon point which is important to
the Silicon Valley economy was the 47% of Intel's sales in Asia. If Europe's share of Intel sales tracks the
SIA figures (18% in 2004), then Intel's US sales were only ~35% of the total.
Moving on, I was unable to find reports
on, nor estimations for, PC growth in the Intel reports. (Didn't anybody think to ask them during the
earnings conference?) Fortunately, 1Q05 results for PCs were recently released by Gartner. Maybe these figures would give us some insight into Intel's, and Silicon Valley's, prospects this year?
Checking Gartner's "Worldwide
PC Vendor Unit shipments:"
"Optimists" assure us everything is fine since 1Q05 PC sales were on-track with the ~10%
-11% annual growth forecast which seems to prevalent. OK, so far, so good.
Then study Gartner's numbers for PC units sold in the
US:
Suddenly you see year-over-year US growth was only 2.3%?!? Yikes!!
As
an aside, market share for the top
five global PC suppliers was 43.2% vs. 62.4% for the top five US suppliers. This may be only
a slightly interesting factoid one can mine from Gartner's data but it points to an important trend. With
the global PC market growing faster than the US market, and US-based PC suppliers holding a smaller share of the global vs.
US market, the percentage of non-US sales for semiconductor sales will continue to increase.
Conclusion: With ~65% of Intel's sales outside
the US, and the percentage likely to increase, Intel is no longer much of a bellwether for the Silicon Valley
economy. What's good for Intel is good for Intel. Much like my old home town when GM started closing plants, the
rest of Silicon Valley is on their own.
