Intel, IBM Speed Through Economic Slowdown

By Michael Feldman

April 18, 2008

If you’ve been listening to the financial news for the past six months, the future seems pretty grim. In the midst of a worsening U.S. economic situation, IBM, Intel and AMD reported their first quarter 2008 financial results. Despite the economic downturn, Intel and IBM seemed relatively unscathed by all the doom and gloom talk. Sure, AMD was in the red for the first quarter — as expected — but its declining revenue was mainly the result of Intel’s success and a year and a half of missteps. Meanwhile both IBM and Intel beat analyst forecasts for the quarter and are projecting respectable growth for the rest of 2008.

But first the bad news. On Thursday AMD finalized its Q1 2008 results, posting a net loss of $358 million — the sixth consecutive quarterly loss. That’s down 15 percent from the previous quarter, but up 22 percent from Q1 2007. AMD recently announced it would be laying off 10 percent of its 16,000-person workforce to help control costs and hasten the company’s return to profitability, which it expects to do in the second half of the 2008.

As a foreshadowing of Thursday’s dismal Q1 report, last week AMD CTO Phil Hester resigned for unspecified reasons. The company said that the global CTO position would be dropped, and that responsibility would be spread out across the five division CTOs. Hester is the third high-level exec to leave AMD within the last year. Henri Richard, director of sales and marketing, left last September, and David Orton, head of the ATI-derived graphics division, left last July.

After a six-month delay, AMD has started shipping the quad-core 65nm Opterons in volume. The company said 13 OEMs have announced new platforms based on the new Opterons, including HP, Dell and Sun Microsystems. If these new quad-core Opteron boxes get some traction in the market against the latest Intel Xeon-based platforms, AMD could be on its way back to profitability. The next three to six months will be crucial for AMD. After that, the company hopes to have its 45nm Opterons ready to go, giving AMD some technological parity with Intel. Of course, it’s hard to imagine AMD will make the 65nm to 45nm transition so quickly in the midst of all the personnel and financial upheavals.

Ironically, AMD’s prospects actually got a boost from Intel’s Q1 results, which seemed to suggest that x86 chip demand is firm, even in the weaker U.S. market. CEO Paul Otellini noted that they saw revenue growth worldwide, but the strong server demand in the U.S. boosted North American sales by 17 percent compared to last year. According to him, the server farm buildout from companies like Google (which just reported a 43 percent revenue jump) is boosting chip sales. In the consumer space, it looks like the mobile PC market will eclipse the desktop market this year, and not next year as Intel had originally thought. This development will also help sustain sales volumes in 2008. Overall, Intel announced first quarter revenue of 9.7 billion, operating income of $2.1 billion and net income of $1.4 billion. The only sour note was that net income dropped 12 percent compared to a year ago.

Since Intel is currently the only chipmaker delivering 45nm chips, the company has been using its technology leadership to gain back market share from AMD. If AMD manages to deliver 45nm processors in the second half of the year, the horse race will start anew. But by then, or soon afterwards, Intel will be shipping the first Nehalem-generation processors, throwing yet another hurdle into its rival’s path. Regardless of which x86 processors are sold, consumers, corporate or otherwise, will continue to take advantage of Moore’s Law to get cheaper computing, even in a shrinking economy.

IBM had perhaps the best news of all, reporting revenues of 24.5 billion for the quarter, up 11 percent from Q1 2007. As reflected in other recent quarterly reports, the company is benefiting mightily from a wide geographic reach. About two-thirds of IBM sales comes from outside the U.S. So even though the revenue growth in the Americas was a healthy eight percent (to $9.9 billion), in EMEA (Europe/Middle East/Africa) it was 16 percent (to $8.8 billion); and in Asia-Pacific it was 14 percent (to $5.1 billion).

The weak dollar abroad is obviously boosting IBM sales, but even U.S. revenue is on the upswing. Compared to the one percent U.S. revenue growth in Q1 2007, the eight percent growth in this quarter is good news indeed. It’s especially significant considering how heavily IBM depends on financial services customers to drive earnings.

The Wall Street Journal reports that IBM customers are buying products and services to boost productivity or reduce operational costs. For example, lots of customers are looking for ways to reduce energy consumption in the datacenter. If that means replacing power-hungry machines or redesigning the facility, the ROI may be easy to justify in a time of rising energy prices. The WSJ article quotes Carl Claunch, a Gartner analyst, who notes: “We’re having very few conversations with clients who want to cut tech spending.”

That might point to a silver lining in the black economic cloud. The contraction, if not too severe, could turn into stimulus for the tech sector. When businesses look for ways to trim operating expenses (after they go through the obligatory layoffs), they often have to look to new computing hardware, software, and services to replace lost production or to improve energy and space efficiency. And IT firms are eager to sell you such products.

It may be fortuitous that the technologies that are yielding energy-efficient processing — multicore chips, virtualization, high-speed communications — have arrived just as energy prices are spiking due to increased global demand. But it’s not really much of a coincidence. Information technology, and specifically the Internet, is perhaps the biggest single driver behind leveling the global playing field. And it’s globalization that’s driving energy demand in rapidly developing countries, like China and India. I’ll leave it to the reader to decide if that’s a virtuous circle or a deadly embrace.


As always, comments about HPCwire are welcomed and encouraged. Write to me, Michael Feldman, at

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