Intel no longer indicator of tech sector's health

San Francisco

NOT that long ago, Wall Street believed that as Intel goes, so goes much of the rest of the technology industry.

If Intel did well in its quarterly earnings report and planned to spend aggressively in the coming months, it meant that personal computer (PC) makers were likely to do the same because the company was the main supplier to all of them.

A lot has changed in recent years. The PC market has been in a long, slow decline, and Intel does not have the same clout with companies that build smartphones, which are today's hottest gadgets.

But even if some of its financial clout has waned, Intel's spending continues to be a key indicator of the health of the tech world. Intel is still - by a good stretch - the world's biggest semiconductor maker and perhaps the only company of its kind with the resources to keep improving chip technology.

If computer chips do not continue to improve, the entire tech industry stalls. Semiconductors have leapt from computers and mobile phones to all sorts of devices, including cars, appliances and toys. They are increasingly connected to the fast-growing computer "clouds" of companies such as Amazon and Google, which are powered by vast data centres of computer servers that mostly use Intel chips.

Intel's financial results are a sort of proxy for growth in cloud-based services, said Thomas Kurian, the president of product development at Oracle, one of the world's largest software companies. "If they ship a lot, it means a huge growth in new cloud projects," he said.

In quarterly earnings reported by Intel on Thursday, the company's revenue was up slightly from the same period last year, but money from data centre chips was up markedly.

Intel reported that its net income in the fourth quarter of 2015 fell one per cent to US$3.6 billion, or 74 US cents a share, from the year-earlier quarter. The company said that revenue climbed one per cent, to US$14.9 billion.

The net income was above the expectations of Wall Street analysts, who had anticipated 63 US cents a share on revenue of US$14.8 billion, according to a survey by Thomson Reuters. For all of 2015, Intel revenue was US$55.4 billion, down one per cent from 2014. Net income was US$11.4 billion, down 2 per cent.

Since the PC industry is sliding, using Intel as an indicator of the health of the rest of tech is not as easy as it used to be. Analysts said that the number to watch now is Intel's investment in Moore's Law. Named for an Intel co-founder, Gordon Moore, that is the observation that computing power, figured in the density of transistors on a chip, tends to double every 18 to 24 months. That effectively means that US$2 of computing power today will cost US$1 in 2018.

Keeping up with Moore's Law is increasingly expensive. In 2001, research and development - along with marketing and sales - cost Intel about US$8 billion. In 2015, Intel said on Thursday, it cost US$20.1 billion.

As a percentage of revenue, the number has crept up too, and on both counts it is at a cost that few companies could manage. Besides Intel, which develops new chips ahead of everyone, the last big semiconductor makers are GlobalFoundries, Samsung and Taiwan Semiconductor Manufacturing Co. Each has to invest billions to stay in the game. NYT