TOKYO-Intel Corp.’s stock took a beating early Friday after the world’s largest silicon chip manufacturer reported third-quarter sales would fall short of analysts’ expectations.
The company’s stock lost about 22 percent of its value, dropping more than $14 per share as soon as the market opened, starting the day at around $47 per share. The sell-off leaves Intel’s stock well off its 52-week high, set earlier this month, of almost $76 per share, but still above its 52-week low of $32.50.
Wall Street’s response to Intel’s sales warning was greeted with mixed reaction by investors. Those still high on tech stocks said the drop was a prime opportunity to “load up and buy as much as I can,” as Bernie Horn, portfolio manager at Boston’s Polaris Capital Management told Reuters.
Those more cautious investors, including Merrill Lynch, Deutsche Banc Alex. Brown, Credit Suisse First Boston, Lehman Brothers, Salomon Smith Barney, Chase H&Q and PaineWebber have decided to cut their outlooks for Intel results.
“Some caution is warranted even with the stock at lower levels,” noted Joe Osha, an analyst at Merrill Lynch, in a report.
New architecture introduced
Prior to its profit warning, Intel last week introduced its Personal Internet Client Architecture, designed to accelerate the development of next-generation Internet applications for wireless devices, including Web-ready cell phones and handheld devices, at the company’s developers forum conference in Tokyo.
Intel said the architecture is a development blueprint that entails independent hardware and software development cycles for computing and communications subsystems allowing wireless applications to be brought to market more quickly.
“Current development requires handsets to be certified from the carriers before the customer can use a phone, and it is not possible to download updated applications without voiding the certification from the carrier,” said Hans Geyer, vice president of Intel Corp. and general manager of its cellular development division. “This architecture will allow the handset manufacturers to develop hardware and software in parallel, speeding up the development process.”
Geyer added that another benefit to manufacturers will be the added functionality that can be embedded into handsets due to the architecture. Now that handsets have reached practical limits on sizing, with some models available in Japan as small as 2 ounces, Geyer said handset manufacturers will need to give customers another reason to upgrade to newer phone models.
Intel also pointed out that another advantage of its PCA is its ability to provide the necessary processing power to run next-generation wireless Internet and data applications. Intel noted that current handheld device designs rely on microcontrollers and digital signal processors that are designed to manage the communication signal path only, not to carry out advanced computing functions needed to handle data-rich applications and Internet content.
“The architecture provides a very clean and clear application,” Geyer added. “More performance will be required to run these data-rich applications, and with the third-generation wireless technologies, carriers will be very interested in allowing customers to send data. With the large sums of money being spent around the world on 3G licenses, data transmission will be an important money-making source for carriers.”
Texas Instruments Inc., one of the largest manufacturers of DSPs for the wireless industry, is not so enamored with Intel’s attempt to push the importance of its technology aside.
“Our key belief is that these advanced devices that Intel is talking about are going to require a large increase in real-time capabilities,” said Mike McMahan, director of research and development for TI’s wireless unit. “You are going to be moving a lot of data across the wireless device, and a distributed DSP-centric model, like our [Open Multimedia Application Platform] is a better system for those applications. Our OMAP solution can execute streaming video with half the processing power and half the battery power needed by Intel’s architecture, and that is important with the limited battery power of wireless handheld devices.”
McMahan added that the user experience will also be different with Intel’s architecture, noting mobile device users are not willing to wait for any delay in processing like consumers are used to with personal computers. In addition, McMahan pointed out TI’s OMAP customers, including Microsoft Corp., Sony Corp., PacketVideo Corp., Nokia Corp. and Ericsson, are all very pleased with the performance of its DSPs.
“The architecture does not need more power, only the transmitter might need more power,” Geyer responded. “When you talk about the application programs, DSPs are not ideal. Phones will always need DSP basebands to run the digital voice applications, but current DSPs will have to get more powerful for next-generation services.”
Intel distributed preliminary specifications detailing the architecture to select wireless companies, with plans for a final specifications and software developers kit to be made available to the industry by the end of the year.
