The Global Demographic Tailwind

[DewDiligence]

Intel Sees Double-Digit Growth for Several Years

[Moreover, the company’s new guidance for “normalized” gross margin is 55-65%, up from the prior guidance of 50-60%. Emerging middle classes in many countries will drive the growth of PC’s and myriad devices with embedded chips, which makes INTC a clear beneficiary of The Global Demographic Tailwind.]

http://online.wsj.com/article/SB10001424052748704250104575238330448773208.html

›MAY 12, 2010
By DON CLARK

Intel Corp. predicted its business will grow sharply over the next few years, driven by an expansion into new markets as well as surprising strength in the computer business.

Paul Otellini, Intel's chief executive, told analysts at a meeting in Santa Clara, Calif., Tuesday that its earnings per share and revenue should grow at an average annual rate in the "low double-digits" over the next few years—about double the chip maker's recent growth rate. "We are on top of a growth engine," Mr. Otellini said.

The Silicon Valley chip maker has experienced a solid rebound in sales of chips for personal computers over the last few quarters. But Intel has faced questions about its long-term prospects, in large part because of its limited participation in the cellphone business. Chip designs licensed by ARM Holdings PLC dominate those products.

Mr. Otellini argued that the chip maker will change that picture by exploiting its technological advantages—particularly a head start over rivals in introducing new manufacturing processes—to deliver new products with much higher performance and lower power consumption. That should help drive the company's chips into cellphones, digital TVs, automotive electronics and other new markets, he said.

"Intel has a unique set of attributes that no one can replicate," Mr. Otellini said. "This stuff gets harder to do and we are going to get better at it."

Meanwhile, the company's traditional business—delivering electronic brains for computers—is also defying predictions of an inevitable slowdown as new users and new uses for PCs emerge, Mr. Otellini said. While desktop PCs should grow at an average annual rate of 2.4% between 2010 and 2014, notebook PC shipments should grow at a 22% annual rate over that period, he said.

Thomas Kilroy, a senior vice president and general manager of Intel's sales and marketing group, said much of the growth will come outside the U.S., in countries such as China, India, Brazil and Indonesia. He predicted 125 million people will buy PCs for the first time over the next few years. Despite the long-term growth, Mr. Kilroy noted that Intel is not changing its financial forecast for the current quarter.

As Intel tries to extend its franchise, one of its biggest challenges is making sure there is software to take advantage of its chips. In computing it has long relied on compatibility with Microsoft Corp.'s Windows operating system, but that software faces tough competition in markets such as cellphones.

As a result, Intel is investing heavily to build its software ecosystem. Mr. Otellini estimated that software professionals now make up 22% of Intel's headcount. Besides hiring, it is helping to offer services and technology so that makers of cellphones and other products can set up "app" stores to work with its Atom microprocessor, akin to Apple Inc.'s popular software distribution system.

Renee James, the senior vice president in charge of Intel's software efforts, gave new details of Intel's plans to ensure that multiple operating systems work on hardware that use the Atom chip—including Android and Chrome OS from Google Inc. Besides cellphones, Intel is making sure software is ready for Atom-based tablet PCs, which will require development of "pinch and touch" capabilities to manipulate touchscreens on tablet devices, she said.

Intel executives also extensively discussed the state of what the industry calls Moore's Law, the cadence of shrinking features on semiconductors that is named after former Intel Chairman Gordon Moore. Bill Holt, senior vice president and general manager of Intel's technology and manufacturing group, said the company continues to get both cost and performance advantages each time it delivers a new chip-making process with smaller features—despite the fact that some industry executives have lately questioned the benefits of such innovation.

Intel began selling chips based on its latest production process last fall. Mr. Holt said it expects to introduce the next-generation process two years after that, right on its historic schedule. Though some industry experts question how long the industry pattern can continue, Mr. Holt said "we don't see an imminent end in our ability to continue to drive Moore's Law."‹