What does Intel's slip mean?

Intellogo In my last post, "Why this tech recession will be different,"  I observed that this slowdown will not be as severe for technology as was the 2001-2003 period.

But now comes Intel's announcement that it expects revenue for the fourth quarter to be down 10% from its original forecast. What does this mean? I have a few thoughts:

1) Intel is not the bellwether that it once was. Personal computers and servers, the primary destination for Intel's processors, are not nearly as large a percentage of tech spending as they were back in 2001.

2) Layoffs in the economy have already begun. Fewer employees, fewer PCs needed.

3) Large companies are accelerating virtualization projects. Virtualization is a fancy word for running more applications on fewer servers. It is greener (less power), simpler (fewer servers to break), and cheaper. Good for companies looking to lower capital expenditure and operating expenses in a recession, but bad for Intel.

Forrester has been predicting that the two tech segments that would be hit hardest in the recession are computing hardware (PCs and servers) and communications gear. But services and software (Intel plays in neither) would fare better. Exit polling would appear to indicate this result.

Comments

re: What does Intel's slip mean?

George, we are nowhere near the bottom of this slope. Everyone is digging in their fingernails to stop the slide. I tend to agree that IT may not be hit as hard as the rest of the industry, so if Intel is predicting minus 10% then you might imagine what the rest will be like. Hang on ...

re: What does Intel's slip mean?

Hi George,I was a bit surprised to see this update following the recent financial warnings from most of the major tech companies. I guess there's something to be said for sticking to your guns, but I frankly think you're dead wrong on this one.Responding to your points:a) It's true that Intel is not as large a percentage of tech spending as they were back in 2001, but they still represent a very large amount of IT spend and this announcement shouldn't be taken lightly. Further, hardware renewals are a necessary part of IT, simply because computers don't last forever – as oppose to software which businesses can sweat for a long time (look at Windows XP or even Ingres database software as examples). If Intel is exposed, I think it’s a reasonable assumption that most other tech companies will be as well.b) This seems like a huge over simplification of the market, but assuming this assertion were to be true – less employees does not only mean less PCs, it also means businesses could scale down licensing fees and services – in other words this trend negatively impacts tech spending across the entire spectrum.c) When we recently embarked on a data center consolidation project it led to a complete refresh of our server infrastructure with new and more powerful servers to run virtualization – again something we'd expected from talking with other companies that have gone this route. Most of the time, server virtualization projects will require new server purchases, and in fact will drive new sales in hardware. Long term you're certainly correct, but near term (i.e. 2009) if virtualization impacts tech spending it will be to the benefit of hardware spend and companies like AMD, and Intel.I think Intel's rushed announcement (remember that it had initially been planned for December 4th), is very troubling and an indicator of much tougher times ahead for technology companies and tech spending in general. Given that a very wide range of tech companies have issued warnings on profit (i.e. Google, SAP, Vmware), I find it amazing that you believe that services and software will be will insulated from the trouble. I don't think any particular segment of tech is insulated from the economic situation, and that everyone is in for a bumpy ride.Regarding who's in for the bumpiest ride, I do agree with your last post completely – IT is a fundamental aspect of business today that can't be switched off. Where we differ is based on my practical experience I think we can afford to run old software, or forgo services by taking on more inhouse. My business cannot afford to not replace our PCs and servers on a regular basis, they are the foundation of IT.