Intel Says Tiny Atom Chip Off to the Races

 
 
By Reuters -  |  Posted 2008-08-13
 
 
 

SAN FRANCISCO (Reuters) - Sales of Intel Corp's (INTC.O: Quote, Profile, Research, Stock Buzz) Atom processors, designed for consumer electronics gadgets and super-slim personal computers, are topping company targets as the world's largest chipmaker seeks to expand beyond a slowing PC market.

"Atom is off to a very, very rapid start, far exceeding our expectations when we started the year," Chief Financial Officer Stacy Smith said in an interview on Tuesday. "It's the perfect recession product to have in the marketplace.

Atom is designed to go into low-cost gizmos that Intel calls Mobile Internet Devices and Netbook computers as well as other devices that may appeal to consumers tightening their belts in the face of a slackening economy.

"It plays very well in the mobile marketplace; it plays in emerging markets; it plays into people's desire to have a second PC, or one for the kids that's low-cost yet still capable," Smith said of Atom. "It's off to the races."

That said, the market for Atom is still nascent, and it's unclear just how large the segments Atom is targeted at will become. Intel faces slowing growth in its mainstay PC business and needs to find new areas of sales growth.

"We'll know kind of in six months how much of this demand (for Atom) is real and how much is customers thinking they're going to win in the market place and double-ordering," Smith added. "It seems to be growing the market rather than cannibalizing existing PC sales."

He also stuck to his forecast for overall revenue in the current third quarter of $10.0 billion to $10.6 billion. "Of course I'm still comfortable with it. It's still my forecast."

Analysts currently expect the company to have third-quarter revenue of $10.3 billion, according to Reuters Estimates.

ECONOMY UNCERTAIN

"It's a very uncertain macro environment," Smith said. "It's not true just in the United States; it's true in Europe in terms of slowing growth. That being said, what we've seen in the last nine months is our business being pretty normal."

Intel last month reported a 25 percent rise in quarterly profit, helped by strong sales of its microprocessors used in notebook computers, and gave a forecast that topped expectations at the time. It continues to do well despite a weak global economic environment, aided by market share gains against smaller rival Advanced Micro Devices Inc (AMD.N: Quote, Profile, Research, Stock Buzz).

Smith said in the first half of 2008, Intel bought back $5 billion in stock and boosted its dividend. "I'm not giving a forward-looking forecast, but we'll continue to use buybacks and dividends to return excess cash to investors," he said.

Smith also said he was not unduly concerned about Atom cannibalizing sales of its existing Core chips, but allowed that he would not mind sales of Atom eating a bit into those of its low-cost Celeron processors.

"If it's cannibalizing from the Celeron part of the market, I'll take that any day," Smith said.

He said Intel gets about 2,500 Atom processors per silicon wafer, meaning that its profitability on Atom -- while not as great as on a Core or Xeon chip -- is still quite healthy.

Smith also said interest among customers that would use Atom in the embedded market has been strong. While it takes longer for Intel to realize revenue from the embedded market because of longer design cycles, once its product has been designed into a car or cable box, it remains there for years.

"They now have a product that's designed much more for their market than what they've had available to them in the past," Smith said of Atom in the embedded market. "They're getting great interest from their own customer base."

"By the time you get into the second half of 2009, (Atom) could be driving some noticeable incremental growth" in the embedded market, Smith said.

Smith also said despite economic uncertainty in markets worldwide, Intel's own business continues to hold up well.

He believes the strength of its product lineup relative to Advanced Micro's, as well as a rapid move to mobile PCs and devices, is helping Intel to weather uncertain economic times.

"Even in the downturn, we're seeing investments in technology continue," Smith said.

Intel shares rose 14 cents to close at $24.52.

(Editing by Gerald E. McCormick and Braden Reddall)