Intel (INTC) Says Stimulus May Not Help When Chips Are Down (VMW)(AMD)(INTC)(MSFT)

The CEO of Intel (INTC) is not sure that the government stimulus package will do him or his industry any good. According to Reuters, the firm’s CEO Craig Barrett said stimulus packages being rolled out by governments around the globe would probably have an impact on demand over the next six to 18 months.

But, Barrett may be dreaming, even though his dream is somewhat pessimistic.

A recovery in the type of chips sold by Intel and smaller rival AMD (AMD) would require a substantial turnaround in the sales of PCs and servers. That is not likely to happen.

Intel is a victim of its own success. The chips that it shipped over the last two years are powerful enough to handle most current PC and server functions. Upgrading to the products created in the last year probably has very limited returns for most consumers and IT departments. The replacement cycle for products with relatively new chips is as likely to be based on machines breaking as it is on the need to have something brand new which adds very little to productivity.

The other problem Intel faces is the rise of virtualization software from companies like VMWare (VMW) and Microsoft (MSFT) The new products allow servers to work much more efficiently, requiring fewer machines. The same principles are being applied to PCs.

Intel is out of luck until the recovery is robust and well under way.

Douglas A. McIntyre