The immediate reaction to Intel’s (NASDAQ:INTC) results, which were better than expected, is that they signalled an improvement in the PC industry. Intel provides about 70% of PC chips.
The world’s largest chip company said it was comfortable with industry estimates that PC sales will grow 10% worldwide next year. Growth is one thing. Profitability another.
The PC industry has gotten more competitive, particularly at the lower end, Extremely inexpensive mini-computers, which sell for as little as $200 have helped increase the market share of Asia manufacturers, particularly Acer and Asus. The margins on these machine are not has high as those on $1,500 dual-core-powered machines, but the mini-computer part of the industry is where most of the growth is. HP (NYSE:HPQ) and Dell (NASDAQ:DELL) have been forced to enter the mini market and that is probably going to hurt their overall gross margins.
The largest PC companies, especially Dell and HP, are trapped between the high end and the low end of the market. Apple’s (NASDAQ:AAPL) Mac has a very large share of PCs sold for over $1,000. Asian firms have a large share of the mini market. That leaves more mainstream manufacturers to compete for the large mid-market where price is essential. There is not much difference among the functions performed by desktops and laptop in the mid-range. Price becomes the major element which drives demand.
Intel’s news may be good for Intel, but is does not necessarily show that PC company profits will get better.
Douglas A. McIntyre
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