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Shrinking PC demand hits Intel earnings, but netbooks shine

It's earnings season, and across the PC industry we're going to see all of the …

Intel reported its fourth quarter revenues today, and the numbers were in line with the company's twice-revised guidance. In other words, they were bad. As expected, revenue was down 19 percent from the previous quarter (recall that revenues are typically up from the third to the fourth quarter, not down).

When you factor in the write downs that the company took from its $900 million funding of Clearwire, Intel's profits dropped 90 percent from the third to the fourth quarter.

The year-over-year picture for 2008 wasn't nearly as bad as the quarter-over-quarter picture, showing "only" a 24 percent drop in net income for 2008 vs. 2007. But again, most of that number is the Clearwire charge; Intel's actual net income for 2008 was down only 2 percent year-over-year.

Intel's gross margins dropped almost six points in the fourth quarter (from 58.9 to 53.1), and are expected to head into the low 40s in 2009. But that's what you get when you try to ramp up a new process (32nm) in the middle of an historic collapse in consumer demand that's putting massive downward pressure on average selling prices (ASPs).

All told, Intel's earnings report tells essentially the same story we've been seeing here for the past week or so: demand across almost all segments of the PC market completely evaporated in the fourth quarter (right around the time Lehman went bankrupt and the economy really nosedived), except for netbooks, which saw massive growth (revenue from Atom was up 50 percent).

As for 2009, Intel won't even try to give guidance on how it will look either yearly or in the first quarter. When you consider the fact that the company gave guidance on a dreadful fourth quarter, the fact that it just won't talk at all about what's coming up isn't exactly comforting. Maybe Somali pirates will commandeer whatever tanker carries all of the red ink, so that we in the press can at least shift metaphors and talk about a different color next year (I nominate periwinkle).

One reader pointed out in the comments to our post on the tanking PC market that all of the layoffs in the economy will have knock-on effects in the PC market, since the firings free up PCs that can then be used to replace failing units (as opposed to buying a new one). Adding all of this PC "inventory" created by layoffs to the excess inventory that's already in the retail channel isn't going to do much to spur demand.

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