19 thoughts on “Intel Warns! Is Something Wrong in Techland?”

  1. Apps and devices are all less system-intensive than in the past. The formerly high-growth infrastructure large caps (INTC, CSCO, MSFT) have become mature industrial companies…not drivers of outsized growth. Just the natural cycle of every industry development and nothing to fret about. For now…

    1. Ahsan

      That is an interesting thought. I wouldn’t go as far as to equate them to mature industrial companies, but I do see that their future growth is definitely going to be more modest to their past hyper-growth. That said, I would says Cisco falls outside the norm because they look for new growth by buying more and more companies in new businesses.

      1. I think Cisco is going to face a fundamental threat to their business model due to the 3com acquisition by HP and the partnership between Juniper and IBM. How can one justify selling ethernet switches at 60% margin when your competitor can sell the same switch at 40% cheaper (yup, including the high end ones). 3Com and Huawei have successfully beaten Cisco to the plump in China – enterprise and service provider segments. With 3Com now HP, how long do you think it will take for other customers to switch.

        To add to Cisco’s problems, enterprise is more than 2/3rd of their revenue and a Cisco switch in the enterprise is probably as commodity a hardware as it can be.

        Any clues why such faith in Cisco, especially with the type of competition they now face from their past friend (HP, IBM, Oracle..) which wasn’t the case over the last 3-5 yrs.

    2. The reality of the situation is that until there is a new “killer app” that requires large client side computing we are going to see CPU sales stagnate. Virtual desktops are going to make this even worse, when 50 desktops off a single quad core computer with great performance. The cheap arm processors in the thin clients are the future of large scale purchasing. Companies are hitting refresh cycles and opting to buy one virtual server instead of 10 underutilized servers. Both corp. and home user’s needs are not growing at the rate of More’s law. Virtualization is eating Microsoft/intel’s lunch in the server realm, and will kill Intel further in the desktop realm as it accelerates.

      The most expensive thing in Enterprise IT purchasing and needs is IOPS, and storage companies delivering it for VDI solutions are where I see crazy growth coming from.

      As for Cisco, IOS is still more advanced in some regards, but the sheer amount of CCNA’s who know their gear in and out means that they will continue to command a price premium do to the ubiquity of staff who know their gear. Their growth though is tied to highly strategic acquisition’s, and they are one of the best companies in the world at doing M&A right (retention numbers, growth etc). Maybe I’m cynical because I’ve scooped up enough dead 3COMs and been burned by HP procurve bugs, but if your looking for growth in the networking world look at Riverbed.

  2. One cannot decouple tech from the broader economy. The US is likely to have a more or less stagnant economy with high unemployment for years to come. Europe is implementing austerity measures which will likely curtail spending for years as well.

    This will not just affect the big companies but will also affect the Web 2.0 upstarts that seem to be ‘doing well’ for now. As companies cut back their advertising budgets, due to the stagnant economy the upstarts may feel a bigger pinch than the Google and Bings of the world.

    On top of everything if the stock markets dip significantly, it will affect overall market sentiment hence detrimentally affecting large and small tech companies.

    Over the next couple of years, companies with large exposures to US markets will likely be the worse off. This includes Apple, Cisco, Facebook, Google etc. Companies with diversified revenues from Asia and Latin America will be protected much better on the downside.

    The sooner companies and their management realize this new economic reality from a macro perspective and start adjusting for it, the better they will perform over the next couple of years.

    Hoping for the macro-economic picture to improve is not the answer here. One needs to face the facts, realize that the US economy will not improve anytime soon and manage their business accordingly.

  3. I think the only cure to this problem is the rise of demand in India and China. Because, there is no positive reaction coming from western world. The two Asian superpowers might have to react fast or else it would become very difficult for global tech companies to move further.

  4. Nobody sees anything wrong with the fact that INTC gave strong positive guidance only one month ago to kick off quarterly earnings season, triggering a market rally that day? One month of data has caused such a shocking reversal?

    1. A very interesting observation. A few days after INTC announced their guidance, a number of analysts started downgrading the chip sector based on their channel checks which showed inventory buildup with lack of end-user demand. I wonder what INTC was looking at or were they hoping no-one would notice for the next few weeks? If so why?

    2. Dan

      I think the issue here is that when you start believing the quarterly data instead of long term trends, you see something is seriously wrong in the whole tech-economy. I have stopped paying attention to analysts on Wall Street mostly because they never do the job and ones who do, are often labeled as idiots and laughed off the ranch.

      That rant aside, i think this short term trading mentality is causing more harm than anything else and this is pervasive across society right now.

  5. Good analysis, I think the giants are facing hard times is also due to the fact they are hardware giants. My new ‘pc’ will be a cheap netbook. Why? Because I want a device to surf the net while sitting next to my wife who liked to watch tv with me (and I’m not interested in tv). Another reason is: most of my pc use is in the clouds! Writing texts, making spreadsheets, photo-editing, I do it all online.
    The new startups offer these hardware independent online services. The old giants have difficulty catching up.

  6. I’m with Erik. While I’ve seen a lot of curtailed spending on hardware (my 2-year-old MacBook Pro is holding up fine, thanks), people are still spending money on Y Combinator-launched web services like Dropbox.

    While I’m grateful for Intel’s billions spent improving chip architecture, we’re now at the point of diminishing returns for the average consumer. Companies ignoring that are sticking their heads in the sand, not the wide-eyed startups that see revenue potential even in a tough economy.

  7. the changing nature of our desktop usage from client based apps to more cloud based apps might be the reason why people settle down for a high end smartphone or a low end laptop … if i am not a developer all i need is a browser or a mail client at max, the same can be achieved on a smartphone or a tablet … this a change in landscape. There will be a demand for high end processors but not for personal desktops but for cloud etc

  8. How about the large tech companies like HP & Dell (they are large, aren’t they) who are willing to shell out big bucks (read $2billion) on acquisitions. They must be seeing light at the end of the tunnel ( or is that a train?)

  9. One important point that’s often overlooked by the industry is that, for most people, the notebook or PC that they bought 3-5 years ago is still powerful enough for what they do. Even corporate servers are now being used for 5+ years, instead of the traditional 3.

    The industry is used to professionals needing a new system every 2-3 years. Those days are gone. This new longevity, coupled with dropping prices and some impact from smartphones/tablets/netbooks has totally changed the playing field. That’s why Intel has started buying software and mobile chip companies.

  10. Good rather excellent and futuristic observation Om!

    It was anticipated to certain extend.
    From 90’s through 2010s we are talking about gadgets and chips
    as consumer products for entertainment.
    May be it is sign of what is future to be.
    Nobody is talking about converting chips for knowledge management of users and enabling them to earn their bread & butter.

    Chips and gadgets should be like sugar and milk.
    let the user decide whether to make coffee or tea.
    From business analytical point I find nytimes will be sustaining its business better than techies for creativity in context of lateral need of customers hence can take class for some of the big techies.

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