With Sales Slumping, Intel Hunkers Down - Page 2

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An efficiency gene pays off

Intel has had a three year project on efficiency and now has "the efficiency gene strongly engrained in how we do things. Not a point process but how to operate more efficiently." This has resulted in $3 billion in savings since it launched in 2006, $800 million in 2008 alone.

Chief Financial Officer Stacy Smith said average selling prices (ASPs) were actually up slightly, flat with Atom sales added in. Atom is taking off, bringing in $300 million, up 50 percent from just the third quarter.

If only the other divisions were up. Every other was in fact, down, as were revenues in all geographies, both sequentially and year-over-year.

Intel took a few other hits in the wallet as well. Spending on research and development and general and administrative dropped $300 million, there was the $250 million in restructuring charges, $200 million of it related to shutting down 200mm fabrication facilities, plus the Clearwire and underutilization charges.

Going forward, Intel would not make solid projections because the worldwide economy "is creating a high degree of uncertainty around demand." Q1, which is traditionally slow after a big Q4, is expected to be around $7 billion. There will be a significant gross margin decline significantly in Q1, in part due to more underutilization charges but also due to ramping up 32nm production.

Q1 margin will be in the low 40s as compared to the mid-50 percent range of prior quarters.

Cannibalizing notebook sales

Otellini said Atom sales have done "a little" cannibalization of notebook sales, but not much. The notebook market has greater momentum and will take longer to slow down.

The netbook market is growing in its own way. Otellini noted that in Japan there is a similar program to cell phones, in that you can buy the netbook for 1 Yen but then pay for an Internet service.

Smith said he's waiting on the Chinese New Year to see what kind of restocking its Asian OEM partners make. He suspected not only would they shut down New Year's week (February 9 ushers in the Year of the Ox) but for the week after that.

After that, it's a waiting game. "We won't see signs of recovery until you see orders in people's hands," said Otellini.