No company likes to start the New Year with really bad news. So when a company
tells the world a week in advance
of its earnings report to expect lower numbers, it's a very big deal. But not completely unexpected.
Intel is the world leader in computer processors. These chips are everywhere from laptops to cell phones to televisions and nearly everything electronic you can think of. Obviously, in a recession, when consumer spending slows, so will sales -- and the need for Intel chips.
But there's also a good news-bad news aspect to Intel's woes as well. While desktop and notebook sales are on the downswing, Intel is actually selling more of its Atom processors for use in Netbook computers. Those are the wildly popular mini-notebooks from companies like Asus,
and more. Most of these computers are Intel Atom based and also use Intel's 945GM chipset for audio, video and other functions.
Atom processors are modern, basic, energy efficient and more importantly very inexpensive -- perfect for tiny laptops. They are also cheap , which means lower profit margins for Intel. So, for every Atom-based computer produced there is someone who won't be buying a bigger/more expensive computer with a higher-profit Intel processor (Core2 or Centrino). So, Intel may be selling a lot of Atoms - but they're not making as much of a profit by doing so.
And Intel is about to have some real competition in this low-profit segment. Others have just announced Netbook processor platforms of their own.
Advanced Micro Devices
calls its solution Yukon with a new Athlon Neo processor and an integrated ATI Radeon X1250 graphics chip. And
has a new Ion graphics chip, which uses a GeForce 9400 engine to better compliment Intel's Atom for what they say "blows away" the competition.
Add to this Intel's large investment in some other future, "bleeding edge" technologies such as 4G WiMax wireless -- slowly being rolled out in this country -- and solid-state drives (which are still very expensive compared to old-fashioned computer hard drives) -- and you begin to understand what Intel is facing in the short term and why it's releasing warnings in advance of the next week's earnings numbers.
Gary Krakow is TheStreet.com's senior technology correspondent.