Intel 'must refocus' to bounce back

Intel must refocus its business and find ways to convince users to upgrade hardware if its finances are to return to rude health.

CIOs are continuing to focus on budgets and are currently resisting large-scale upgrades of their desktop environments, trends which have left Intel flailing around for new revenue streams, industry pundits have told silicon.com.

Intel announced earlier today that its profits were down 76 per cent from this time last year.

Rob Enderle, vice president at Giga, claimed Intel's problems go far beyond the economic downturn.

He said: "Intel has been far less focused on its business which has caused a steep decline - it's not just the downturn. Intel needs to sharply look at its business and fundamentally try to think about the difference in performance a few quarters ago and its low performance now."

However, much of Intel's woes can be blamed on the general slowdown in the hardware market.

Anthony Capstick, managing director of Instant Search, said: "I can't see a market for chips right now as people have invested so much in upgrading hardware that it needs software advances to convince them to invest in higher performance machines."

He added: "PCs have got as powerful as they need to be to cope with the software on the market."

Enderle agreed, claiming many companies are postponing hardware upgrades.

"Customers are looking at their hardware and saying that under the current world economy, with limited budgets, they cannot justify the cost of an upgrade," he said.

However, according to a research note from Joseph Osha of Merrill Lynch, the company's long-term strategy makes sense. The move to 0.13micron manufacturing will help the company to recover some of its margins, though in Osha's opinion the next two quarters will bring little cheer to the market.

Osha added Intel will need to see some excellent demand and firm pricing in order to compensate for its aggressive pricing strategy. An aggressive push to encourage users to upgrade to P4 will also be needed if Intel's recovery is to be secured.