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Intel Earnings: A Strong Show, but the Chip Industry Still Has Big Problems

Intel happily surprised Wall Street with Q4 earnings that saw revenue up 8 percent year over year. And revenue for the year was up 24 percent over 2009.

Both PC client and data center microprocessor revenues were up sharply for the year (24.1 percent and 38.9 percent, respectively). And yet, there's plenty to worry about in the semiconductor biz these days. Smartphones, tablets, and market maturity are transforming the technology landscape, and both consumers and businesses will increasingly move away from the PC-centric view of the world that has dominated tech for decades. Suddenly, Intel and its PC-microprocessor rivals are all trying to protect their posteriors.

AMD's short-sighted deal in mobile
In the case of Advanced Micro Devices (AMD), the result was the ejection of its CEO because the company had gone nowhere in chips for mobile devices. As Jon Stokes at Ars Technica smartly pointed out, the real problem behind AMD's poor position is that the company sold the mobile chip technology it was developing to Qualcomm (QCOM) as part of a restructuring that kept the company in business. The board blamed the CEO, even though it damned well had to sign off on that deal.

But we're in a time of panic, even if Intel's numbers may cause some investors to relax. You can bet that executives at Intel, or any other major semiconductor company, won't do the same. Those who made wrong calls on mobile are sweating. The cost of creating new chips and the time necessary to create a new design raise real questions as to how effectively chipmakers can react to market changes.

PC growth is slumping
Look at the Gartner PC numbers for last quarter: 3.1 percent year-over-year growth instead of the firm's expected 4.8 percent. And that was during the holiday shopping season. By IDC's count, global PC sales were up by only 2.7 percent. Some equity analysts expected even higher growth.

So, although chips do seem to be motoring along, the devices that use the PC-oriented ones are having problems. How long can it be until the pain starts making its way up the product chain?


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