Intel CEO plays down concerns about tech spending

SANTA CLARA, California Thu May 10, 2012 8:33pm BST

Paul Otellini, president and CEO of Intel Corporation, holds an Intel smartphone reference design as he gives a keynote address during the 2012 International Consumer Electronics Show (CES) in Las Vegas, Nevada, January 10, 2012. REUTERS/Steve Marcus

Paul Otellini, president and CEO of Intel Corporation, holds an Intel smartphone reference design as he gives a keynote address during the 2012 International Consumer Electronics Show (CES) in Las Vegas, Nevada, January 10, 2012.

Credit: Reuters/Steve Marcus

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SANTA CLARA, California (Reuters) - Intel Corp Chief Executive Paul Otellini said he is not seeing unexpected weakness in enterprise technology spending that Cisco CEO John Chambers cited when he forecast quarterly earnings below estimates.

"This quarter is playing out as we thought. The enterprise is good, it's not fantastic, so we don't see a change in that," Otellini said in answer to a question at Intel's annual investor day on Thursday.

Shares of Cisco Systems Inc, which relies on government and corporate spending on Internet gear, dropped more than 10 percent on Thursday following its earnings report a day earlier.

"I think John's comments were focused on Europe in particular. We haven't seen any change in Europe demand on the enterprise side," Otellini said.

Much of the presentations by Otellini and other Intel executives showcased the chipmaker's long-awaited push into smartphones and ultrathin laptops. Intel offered little new hope to investors concerned about languid PC sales.

Otellini also forecast that Intel, with its deep pockets, would survive as one of a handful of leading-edge chip manufacturers as the sector moves toward larger and costlier factories.

With the industry preparing to increase the size of the silicon wafers it uses, letting manufacturers fit more chips on each, future leading-edge factories will cost more than $10 billion (6.19 billion pounds) each to build, compared with about $5 billion now, Otellini added.

With worldwide PC shipments barely growing, Intel has been racing to establish a foothold in smartphone and tablet markets, where processors based on ARM Holdings' power-efficient chip designs are widely used.

Last month in India, Lava International launched the first smartphone using Intel's new Medfield processor and the device has received respectable reviews from benchmark testers.

"We're getting awfully good reviews for our first phones," Otellini told investors at an annual Intel event. "We have ambitions; you'll see more announcements over time and very cool capabilities built into phones."

Before declaring that Intel is a serious player in the mobile market, many investors are waiting to see how successful the new handsets become with consumers. Growing expectations that Intel will be able to compete have fuelled gains in its shares in recent months.

Intel is heavily promoting a PC category it has dubbed ultrabooks, similar to Apple Inc's Macbook Air and offering some of the technological chic the iPad and other tablets epitomize.

Major manufacturers like Asus and Hewlett Packard are launching ultrabooks, but some investors are concerned that the expensive components used in them, such as solid-state drives, make them too pricey for many consumers.

Intel Vice President Kirk Skaugen, in charge of the ultrabook push, said the laptops are aimed at prices starting at $700.

Demonstrations of future gadgets, including an ultrabook with a touchscreen display, won polite applause. But analysts said they heard little to reduce concerns that Intel may sacrifice profit margins on sales of its processors to make ultrabooks affordable and help drive sales.

Otellini said sales were on track and would pick up in the second half of 2012 as more manufacturers start using Intel's new Ivy Bridge processor for PCs.

"We're on track to meet our goal of 40 percent of consumer notebooks this holiday season being ultrabooks," Otellini said.

Last month, Intel posted quarterly earnings that failed to inspire gains in its recently high-flying stock and also said costs associated with ramping up new production lines for the Ivy Bridge chips would hurt gross margins more than expected.

Global PC shipments in the first quarter grew a tepid 1.9 percent from the year-ago period, according to research firm Gartner.

Helped by emerging markets, the new Ivy Bridge processor and ultrabooks, Intel expects PC shipments this year to grow by a "high-single digits" percentage.

Otellini said manufacturers are working on 20 tablets using Intel processors and Microsoft's long-awaited Windows 8 platform, expected later this year.

(Editing by Andre Grenon, Gary Hill and Steve Orlofsky)