As Intel Q1 Earnings Approach, Partners Warily Eye Weak PC Demand

As Intel's April 14 first-quarter earnings report approaches, partners are nervous that the company's weak business and desktop PC sales will be a thorn in the Santa Clara, Calif.-based company's side.

The concerns peaked after Intel slashed its first-quarter revenue outlook by almost a billion dollars in March, citing weak SMB demand for its PCs and low inventory levels across its personal computer supply chain.

Partners said standard PC sales are losing momentum in the market, but specialized PCs and notebooks are achieving steady popularity.

[Related: Intel 'PC On A Stick' Paves Avenue In The Channel]

"As a whole, the channel is struggling to find its place in the PC world because of depreciating costs and the rise of Chromebooks," said Erik Stromquist, chief operating officer of Beaverton, Ore.-based CTL, a custom system builder and Intel partner. "Our PC business continues to grow, however, because we differentiate our products and go after specialized verticals as opposed to the standard PCs. We're starting to see Intel lose share in the notebook market, and wouldn't be surprised if their earnings aren't great. In education, we're seeing Chromebooks becoming detrimental to Intel as ARM makes its way into more Chromebooks."

A study from research firm IDC released Thursday heightened concerns about PC sales: Worldwide PC shipments saw a 6.7 percent decline in the first quarter of 2015 from the same quarter last year, the study said, because of a commercial slowdown after the Windows XP refresh in 2014.

The report reflected the decline in U.S. PC shipments of 1 percent year over year. Dell, which uses Intel's Core processors in its Inspiron desktops, declined in shipments by 3.8 percent in Q1 2015 from the same quarter last year.

Analysts say the PC lag will unsurprisingly have an influence on the coming earnings call, but they don't expect that impact to be long term.

"They came out and warned us before," said Patrick Moorhead, president and principal analyst at Moor Insights. "I think we have a good idea that Intel will come in line with the numbers they talked about in the PC market. But looking forward, I think people have a lot of questions about Windows 10 and what that will do for the PC market."

In the coming year, Moorhead said, the Windows 10 release, slated for the fall, and a continued improvement in the economy could boost PC sales.

"I happen to believe that during the 2015 holiday [season], we'll see a resurgence in demand for consumer PCs due to a bunch of different factors," he said. "The consumer PC will be the biggest driver. In the economy, there won't be many competing products and items for the pocket book of consumers, and they will turn their focus to PCs."

While some partners see a steady revenue source in PCs for their businesses, for others the real value is not in hardware but the services and software that surround these devices.

"My business is less hardware than it is services and support," said Glen Coffield, president of Smart Guys Computers, a Lake Mary, Fla.-based system builder. "The amount of computers I build is minimal because the profit in hardware has gone away."

According to Intel, the company expects first-quarter revenue to be $12.8 billion. In the holiday quarter of 2014, Intel beat analysts' expectations set by Thompson Reuters with $14.72 billion in revenue, as its Client PC Group increased in revenue 4 percent compared with the same quarter in 2013. This upward spike was helped in part by widespread PC migrations because of the end-of-life of the Windows XP operating system.

More recently, Intel restructured the presentation of its operating segments to reflect a combination of the PC Client Group and its Mobile and Communications Group to create the Client Computing Group, which will be reflected in its earnings next week. Other groups, such as Intel's data center, Internet of Things, and software and services operating segments, will remain the same.

PUBLISHED APRIL 10, 2015