I hate listening to Intel conference calls, but it’s not Intel’s fault.
I’ll put it this way. If you ever want to drink yourself into unconsciousness, and quite possibly death, all you have to do is have a drinking game in which everyone takes a drink every time the phrase “gross margin” is mentioned during one of these conference calls.
DISCLAIMER: Drinking yourself to death could be hazardous to your health. Do not try this at home or anywhere else.
Yesterday, if you had played this game while listening to the Intel conference call, you would have had to have downed 34 drinks in an hour. It’s really not the fault of the Intel executives, that’s all their audience wants to hear about. During their initial 20-25 minute presentation, when the Intellers were speaking you would have downed a mere seven drinks. That’s just warmup. The serious gulping starts when the analysts start asking questions. First question yesterday:
All right, that’s great. In terms of the gross margin guidance, it seems like you are managing to hold up gross margins and continue to improve it. A question for you here, Paul, is to what extent is the gross margin guidance, I know it’s plus or minus a couple of points but given that this is a very challenging macro environment, it seems like the gross margin guidance is fairly resilient. Are you — this is definitely in many ways a reflection of Intel’s clients competitive positioning but how bad can it get, really? I mean, what could influence any further weakness in gross margins? And by this I’m asking for clarification around things like 32-nanometer ramp or possibly any kind of mix change. If enterprise were to weaken further, could gross margins get even worse? You know, so just try to help me understand.
146 words, maybe it took a minute, ninety seconds tops to say. Six drinks in sixty-ninety seconds. That could get you loaded. And, no, the other analysts weren’t much better.
This is actually a very strict test, since you only had to take a drink when the exact phrase “gross margin(s)” was used. If you had to take a drink everytime the concept of gross margins came up, this would not be drinking. This would be liquid suicide. You would surely die. I don’t care if you put everyone under the table at the Great Siberian Drink Off, you would just die harder.
If Intel ever announced, “Next quarter, we will begin producing a processor that is a hundred times faster than Nehalem and will sell for $9.99,” the beancounters would ask, “Will this hurt the gross margin?” If Paul Otellini said, “We’re tired of making CPUs. Let AMD have the business. We’re going to make potato chips instead,” the first question would be, “How much will that increase the gross margin?” If an Intel executive passed gas during the call, the analyst reaction would be, “Was that a plus or minus on the gross margin?”
The point to all this (besides making me feel better) is that the only way you’ll learn something from these calls about anything besides gross margins at Intel is if Intel volunteers the information.
What Intel said in a nutshell yesterday was, “Right now, we’re in very good shape to weather a recession. Our sales will have to really go to hell before we’ll cut back on our R&D and fabbing. All we know about next quarter is that we won’t get our typical 10% pop up for Christmas. If we’re lucky, it will be about the same as last year, if not, it will be about 5% less. But we’re not all too sure about that, so we’ll get back to you a little after Thanksgiving with an updated forecast. And, BTW, about that gross margin, it will go up a little if business is really good, and will go down a little if business is really bad.”
Something else needs to be said: there’s uncertainty and doubt, but there’s no reason to buy fearfulness like that expressed here. The industry media has a bad habit of yelling “The sky is falling” when it isn’t expanding by 15% a year. If this year’s sales are the same as last year’s sales, people are picking pieces of sky out of their teeth.
Preliminary sales numbers indicate that PC sales were up about 15% from the same time last year. While it’s not going to be a terribly Merry Christmas for PC sellers, even if Christmas is just plain terrible, we’re still looking at sales of 75-80 million PCs. This is not going to drive Intel out of business. It’s not even going to drive AMD out of business. It may drive some weakest link retailers and startups over the cliff, but odds are they were in trouble even before this crisis hit the CPU fans.
Odds are what we’re going to see is overall PC sales stalling for a year or so. North American sales will probably go down a bit, Europe will stay static, Asia will grow more slowly. A really hard, deep recession might drop overall sales about 10%. Anything worse than that, and you’ll be more worried about getting your next meal than your next computer.
We’re looking at tougher times in the computer industry, not tough times.