Intel's Otellini: What, me worry?
While the chip giant's first quarter was a challenge, executives are still confident about the rest of the year. That's good news for tech industry nail-biters.
Crude oil prices are at an all-time high. The housing market keeps getting worse. Your 401(k) is probably in the tank, and, oh yeah, unemployment is up.
Now here's the good news: Intel executives aren't as freaked out about the economy as the rest of us. In earnings news that had to have had many breathing a sigh of relief, Intel announced Tuesday afternoon that its first quarter, while admittedly difficult, beat Wall Street expectations. More importantly, Intel executives signaled confidence in the year ahead.
"What we're seeing is growing strength in the core business," in the second quarter and through the rest of the year, Intel Chief Financial Officer Stacy Smith said in a conference call with Wall Street analysts. In an offhand comment, CEO Paul Otellini intimated that the biggest fretting is probably taking place in Manhattan (read: Wall Street), but Intel's global business is still going strong, including in mature markets such as the United States and Europe.
Intel, of course, has long been a bellwether for the high-tech industry, along with other giants like Microsoft, Hewlett-Packard, IBM, Cisco and--dare I add to the list--Google. But for people who follow the tech economy, the chip giant's sales forecast is usually the single best gauge of how the industry will fare in the coming months. It is, as, tech's canary in the coal mine. (Tom has a more detailed look at Intel's earnings on his blog, )
Don't let anyone fool you: While Silicon Valley is atwitterover social networking and varied Web 2.0 doodads, the real indicators of tech's health are the companies that sell the stuff everyone else builds on. As pundits often said in the Web 1.0 boom, it wasn't the gold miners who got rich during the California gold rush, it was the guys who sold them the shovels.
It's easy to say Intel is benefiting from problems at its faithful rival AMD. But optimists would like to think Intel's forecast is indicative of continued spending on PCs and servers. The forecast could indicate that while many consumers may have given up on buying a new house, they haven't given up on buying a new PC. And big companies, even the Wall Street financial institutions reeling because of the mortgage crisis, are still buying new servers.
Another factor Intel mentioned: Companies building out on the back-end to take advantage of. Maybe Facebook isn't the only young outfit this year to improve its data centers. Like I said, selling shovels (or servers) is a great business during a boom.
That's not to say everything is rosy in tech. While Intel was optimistic in the face of skeptical questioning from analysts Tuesday, storage manufacturerfor the current quarter. And we're waiting on earnings news from some of the other bellwethers: IBM reports Wednesday, and Google reports Thursday.
That's the tricky thing about forecasts: You can only go on what people tell you. That chief information officer at a big bank may think he's buying a truck full of new x86 servers, but if his CFO panics because bad sales reports are starting to trickle in, the servers are going to stay in the truck.
Another reason for caution: The last time there was a tech bubble, executives at even the biggest companies said everything was just fine...right until it wasn't. And even the most enthusiastic of Web 2.0 boosters would have to admit this year is going to be make or break for plenty of companies relying on advertising for their revenues.
There's an old joke about being an economist: You never have to say you're wrong. You've just changed your analysis based upon new data. Right now, Intel is only one part of the data puzzle. If the national and global economies continue to worsen, only a fool would think tech could avoid taking a hit.
But chastened honchos at companies like Intel would be happy to blame bad news on a souring economy if they felt a need to do so. At the moment, it seems clear at Intel at least, there's no need.