Intel Makes the Case for Buying New Hardware

SANTA CLARA, Calif. – Businesses are not buying, but Intel is out to change that and made a case that in every single segment of its business, “we’re going to give people new reasons to buy products in addition to reasons they already have.”

That was the pitch from Sean Maloney, executive vice president of sales and marketing at the chip giant, who followed his boss (and the man he may replace some day), CEO Paul Otellini, in the opening day of Intel’s (NASDAQ: INTC) analyst/investor meeting earlier this week.

Maloney’s talk centered around three primary themes: not delaying refresh cycles, the Windows 7 impact, and the emerging netbook market. Maloney repeated a message others have made, including Intel itself; that businesses are pushing out their refresh cycles and once you go beyond three years, it costs more than you save.

“Corporate refreshes have been pushed out. At some point that will bounce back. We do see a big server refresh opportunity,” said Maloney. There are a lot of single-core Xeons out there that can be consolidated into multi-core, virtualized servers. The cost of power isn’t as visible with older desktops because it’s spread across the company, but in a datacenter, where computing systems are concentrated, it really shows up.”

He showed a slide that claimed 21 Xeon 5500 blade servers can replace 184 single-core Xeons from 2005 and pay for themselves in eight months, in part due to a 92 percent reduction in power. “Everyone is hurting on operating costs. We can go and immediately address this,” said Maloney.

Hitting the limits of Netbooks

As for netbooks, he said cannibalization is not as severe as imagined. For the last four months, netbooks have accounted for about 15 percent of total portable sales. “The market has not all leapt over to netbooks. Our takeaway from this is we’re very comfortable with having established the category. We think the netbooks are a significantly under distributed line that could have a wider range of availability,” said Maloney.

Showing the spread of Intel processor sales, he noted that lately, Atom is eating into Celeron. “We’re quite fine with this,” Maloney noted. Core and Pentium sales are flat to slightly down, which he said is normal in a recessionary period.

But he also noted netbooks were initially mis-marketed by some as smaller versions of notebooks. “In the first period, June, July, August of last year, there were some in the retail channels that were shipping [netbooks] as notebooks,” he said.

“They were running ads that had a continuum of notebooks and had this netbooky thing in there. It was called a notebook. They had very high return rates and a couple of these guys had return rates in the 30 percent range, which is a disaster.”

Analyst Jon Peddie is on record as saying the mis-marketing was not so much a sin of the OEMs but retailers, which made advertisements that gave no sense of scale of the relative size of a netbook to a notebook, and customers didn’t know any better. As these things started boomeranging left and right, retailers got the message and altered their ads.

Maloney said Intel is now “pretty comfortable that netbooks have been pretty well positioned in separate categories. The netbook is a companion device. People don’t use them for the things they use notebooks for.” He made this point by playing YouTube videos from the basketball playoffs, showing high resolution, smooth video performance on a laptop but jerky, poor resolution video on the netbook.

On the desktop/mobile front, Maloney said sales could pick up this fall with the release of Windows 7. “We think the folks at Microsoft (NASDAQ: MSFT) have done a bang up job on this. It’s a compelling refresh in security, battery life, performance and UI. We will be working very closely with Microsoft to make sure this will help us drive another refresh cycle,” said Maloney.

Intel’s motto for the next refresh cycle: “Thin is in.” It’s a fashion that follows Moore’s Law, in that there will be a whole series of new notebooks at affordable price points that offer at least equal the performance of current laptops but with 50 percent less weight as existing notebooks and with 50 percent more battery life.

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