Friday, May 1, 2020
Intel saw a major spurt in demand for laptop processors unlike anything the chipmaker had seen in the previous 12 months thanks in large part to the abrupt shift of people working from home prompted by the coronavirus pandemic. But growth prospects for the rest of the year look dimmer.
The Santa Clara, Calif.-based company saw a 22 percent increase in notebook volume and a 3 percent decrease in average selling price for laptop processors in the first quarter over the same period last year, reversing declining notebook volumes and increasing average selling prices over the previous five quarters, according to the company's latest 10-Q filing, filed Friday.
During Intel's earnings call last week, Intel CFO George S. Davis said the work-from-home and distance learning boom was a significant contributor to the Client Computing Group's 14 percent year-over-year increase in sales to $9.8 billion. But the growth was also the result of the company improving supply of its processors, which allowed partners to build up inventory again.
"We had customers who have been short of demand for a number of quarters who were seeing a chance to finally build some – a little bit of inventory, which gave us a seasonally strong first quarter relative to anything we might see historically," he said. "But we saw notebook volumes up over 20 percent in the quarter. And I would say that that’s more than just the pent-up demand."
Demand for desktop processors was much lower, with volume decreasing 4 percent year-over-year in the first quarter while the average selling price increased by the same percentage. This happened after desktop platform volume soared 6 percent and average selling price declined 3 percent in 2019's fourth quarter, which was preceded by three quarters of decreasing volumes and increasing average selling prices, according to Intel's 10-Q that was filed with the U.S. Securities and Exchange Commission.
But while the overall demand for client processors was up in the first quarter, Intel's expectations for the rest of the year are cloudy and diminished.
In expressing uncertainty for how the pandemic could further impact the economy, Intel pulled the guidance for its full-year revenue forecast, which the company said in January was expected to be around $73.5 billion. But even then, Davis said he expects the pandemic-induced recession will reduce the total addressable market for PCs — and consequently its client CPUs — in the second half of 2020.
"At some point, we’re going to see the impacts of the recession start to impact demand on PCs," he said.
Demand for PCs, tablets and mobile phones are expected to decline 8.8 percent in 2020, according to an April 2 report issued by research firm IDC, which said that "hardware spending in general is always identified for rapid spending cuts during any economic crisis." The firm said in March that a "significant contraction" is highly likely for global semiconductor revenues this year.
Michael Goldstein, CEO of LAN Infotech, a Fort Lauderdale, Fla.-based solution provider that works with Dell and Lenovo, said the boost in PC sales in the last two quarters can also be attributed to Microsoft's end of support for Windows 7. But the work-from-home rush was undoubtedly a major factor in PC shipments for the last several weeks, he added.
"We have seen a very increased demand over these past three weeks for anything with a CPU that we can get our hands on," Goldstein said. "I think that a lot of people that went home and decided to use their home equipment didn't realize how old it was."
Many of Goldstein's law firm clients had largely relied on desktop PCs in the past, the solution provider said, so with this shift to home offices, he thinks there will be a greater demand for laptops over desktops over time, with a push for mid-tier options that take advantage of virtual desktop infrastructure solutions like Windows Virtual Desktop.
"I think that now that people have had a taste of working from home and not being tied to that one office, we'll see a bigger demand in mobile-type computing," he said.
Bob Venero, CEO of Future Tech Enterprise, a New York-based Intel partner that sells to large enterprise customers, believes Intel's diminished outlook for PCs in the second half of 2020 is a reflection of the lack of budget money that companies are experiencing due to the pandemic’s economic impact.
"I don't think the demand will be less. I think that the money may be less," he said.
But Venero said that's why OEMs like Dell Technologies are stepping in with new financing programs that will help customers continue to make IT investments.
"Most of the OEMs are creating special finance [program] and/or are deferring payment schedules for the partners as well as for the customers that will allow organizations to continue to procure for their needs and not necessarily pay right out of the gate," he said.
Laptops may have gotten the spotlight in the first quarter, but Venero said desktop PCs can also be appealing for home offices, especially from an economic perspective.
"If you're going to set up a true home-based office, a notebook may not be the best answer for that, based on cost comparison," he said.
Mark Fertik, vice president of technology solutions at Elk Grove Village, Ill.-based Ace Computers, an Intel partner that sells to federal government clients, said enterprises and small- to medium-sized businesses will contribute the most to lower PC demand due to smaller budgets and workforces.
"I think a lot of companies that back in December and January were projecting that they were going to do a bunch of upgrades are going to push it," he said. "They're going to push it to the fall. Some of them are going to push into next year."
And with 26 million people in the United States filing for unemployment in the last five weeks, the lower number of people in the workforce means a much lesser need for PCs at work.
"I think it has to slow down because of just the massive unemployment and the absurd lag of getting people back to work," Fertik said.
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