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Intel: demand will return

Intel executives acknowledge that the PC inventory glut will slow second-quarter revenue growth for the PC industry, but argue that demand will return.

The PC inventory glut and slower-than-expected demand will keep a lid on second-quarter revenue growth for the PC industry, but it will return to form during the second half of the year, Intel executives said in a meeting with analysts in New York today.

Boosting PC revenue growth back into the mid- to high teens will come as a result of new product releases, a cyclical upturn in demand, and the elimination of some of the problems that slowed down demand during the first half, executives at the company told the analysts during a nearly four-hour presentation.

Intel also will be working behind the scenes as much as possible to ensure that its partners in the PC business remain healthy. For example, the company is creating electronic commerce systems designed to help computer vendors avoid the inventory gluts and consequent price wars that plagued the industry during the first quarter. (See related story)

The company also will be working with memory chip manufacturers, who have been stung by a glut in supply, to keep memory production up in an effort to avoid a future shortage.

Asked to comment on rumors that Intel was making an investment in Samsung, Craig Barrett, Intel's CEO designate, said, "We are very interested in ensuring an adequate supply of DRAM [memory chips] and we will do whatever is in our power to make that happen."

Intel stock closed up 2.44 today, at 78.94. The shares have traded as high as 102 and as low as 67.38 during the past 52 weeks.

During the second half of the year, PC vendors will be shipping servers and workstations based around the pricier, high-performance "Slot 2" processors, while Intel will release the second version of its Celeron chip for the low-end PC segment, said Sean Maloney, the chip giant's vice president of marketing.

He pointed out that demand traditionally is stronger during the second half of the year and added that the current PC inventory bubble should burst by then, which will make way for newer products.

Still, for the short term, demand will continue to be tepid.

"The current price wars and the Asian slowdown were factors in our Q1 business," Maloney said. "The disposition of old inventory will continue to impact the computer industry in the short term."

Most of the shortfall in demand for the first quarter came as a result of softness in Asia and also from the big PC makers. While the company's sales were up in China and India, they were not up enough to offset the slowdown seen in other areas.

In North America, meanwhile, sales of chips through distribution increased slightly. "It was the OEM (original equipment manufacturing) part of our business where we saw way slower-than-expected demand," Maloney said.

Overall, the market "felt spongy and was not consistent with growth rates in the high teens," he added.

Barrett noted that Intel will continue to invest heavily in new plants and technologies. The company's next big investment hurdle comes when it moves toward the advanced .18-micron manufacturing process. This will occur by mid-1999, slightly sooner than originally planned. This new production process will allow Intel to produce cheaper and faster chips.

Maloney and other executives tried to take some of the wind out of the sub-$1,000 PC category. While the executives conceded that the segment has grown, many maintained that it has not grown as much as some reports indicate.

Most of the reports calculated the rise with reference to retail sales only, according to Intel. Consumers, however, have been making purchases from multiple sources, including direct marketers. When those sources are considered, the sub-$1,000 segment represents less of a phenomenon, the company said.

Nevertheless, Barrett acknowledged that sales in the basic PC arena were at "historic" highs.