Intel - Viewpoint

Hello! I’m pleased to kick-off this first edition of Intel EMEA’s Analyst Newsletter.

This has been a tough time for all industries. We are seeing companies larger and older than Intel threatened with closure, restructuring and huge losses. As organisations tighten their budgets and postpone IT investment the semiconductor industry inevitably feels the pressure.

Our first indication of trouble was the sudden contraction of OEM and Channel supplier inventories in Q4 2008. Typically, the PC industry works on six-week inventories. If market demand dries up then unsold inventory quickly becomes unsellable. Within weeks of the banking industry meltdown our customers slashed their inventories from six to just two weeks. As a result in Q4 2008 and Q1 2009 we chalked up lower revenues. Shortly afterwards, the ripple of weakening end user demand washed up at our door as, for example, businesses decided to delay their PC client refresh..

These sudden drops create disruption in the supply chain. Intel has world-class manufacturing operations with relatively low throughput times. Nevertheless, as well as a drop in demand we also had to contend with under-utilisation charges as our fabrication plants ran at less than 100 percent capacity.

The good news is that in good times or bad, business needs IT. As our CEO Paul Otellini, reported in April we’re starting to see demand stabilisation, albeit at a lower level. Channel inventories are now beginning to restock. In the US and many European countries, governments are seriously looking at IT as a means to drive GDP growth. And large investments are being ploughed into energy, education, broadband initiatives, electronic health and more. Intel technology is at the heart of these areas.

As for PC refresh, we’ve been here before. The delay won’t last forever. At some point aging computers become too expensive to support and actually hamper business performance. Intel® vPro™ Technology combined with Microsoft’s Windows* 7 operating system delivers new security, usability and productivity enhancements. In short, 2010 is going to be a great year for enterprise desktop PC refreshes.

Our varied product portfolio also puts us in a great position to tackle the consumer market. Although PC growth is barely above zero percent it is much healthier than the mobile phone market, which is showing a10 percent retraction. The markets for home theatre systems and PC printers are shrinking by around 20 percent.

Our $10 billion annual R&D budgets have helped to drive significant cost savings which benefit the consumer market. New products on 45nm and 32nm processor technologies create savings which are passed on, for example, to extremely price-competitive Intel® Atom™ processors. In turn these have driven uptake of netbooks, which dovetail perfectly with the needs of certain consumers, particularly in the current market environment. The notebook, meanwhile, just became even more attractive as companies are drawn to ultra-thin affordable laptops, enabled by our mobile ULV technology.

We’re also seeing the rapid development of new distribution channels that did not exist five years ago. As telecommunications service providers find new and innovative ways to increase their RPU, we’re tracking over 300 operator driven PC+Services bundles in the market place. Such initiatives will continue to drive incremental volume in areas such as the neglected teenage market to name one of many.

Atom will also find a home in new applications and business segments previously untouched by Intel. The embedded market is worth $15 billion annually and what Intel provides in the form of Atom is reduced development cycles, well understood development tools, a large development community and 100 percent web compatibility.

Intel’s recently retired chairman, Craig Barrett famously said “Many nations and businesses try to save their way out of a recession. It is much better to invest our way out”. These times can be an opportunity to refocus efforts on improving internal efficiency with IT systems that deliver cost savings and future competitiveness.

Intel® Xeon® processor 5500 series is now available in the mainstream server market. The performance of this product is exceptional. Together with its virtualisation tools it offers an eight month ROI alongside significant operational savings. When compared to a typical four year old single-core datacentre installation, upgrading to Intel Xeon processor 5500 series can deliver the same

performance with a 92 percent annual energy cost saving. Alternatively, upgrading servers one-for-one can drive a 900 percent performance boost and still reduce energy costs by 18 percent. With this sort of capability there are real opportunities for businesses to increase their effectiveness in preparation for the inevitable upswing in business.

To quote Craig Barrett once again; “I have never been more optimistic for the future than I am right now, even in the middle of a recession”.

I hope you enjoy the rest of the newsletter!