Intel’s upside

It didn’t take long for Intel to turn that frown upside down.

Less than a week after it announced it would lay off approximately 4,000 employees in the wake of lower-than-expected second quarter earnings, the chipmaker released the results of a survey Tuesday that suggests an IT spending

recovery is just around the corner.

Conducted by Northstar Research Partners (a firm with so little IT name recognition and credibility that Intel might as well have used Acme Polling Corp.), the study says 71 per cent of 100 Canadian “”senior IT decision makers”” surveyed plan to invest in new servers over the next 18 to 24 months. A whopping 77 per cent said they plan to invest in new operating systems, with 41 per cent of respondents anticipating an increase in their OS expenditure compared with previous years.

“”The Canadian business environment appears to be ripe for Intel’s new Xeon and Itanium 2 processor-based servers and workstations,”” Intel of Canada country manager Doug Cooper said (with fingers crossed, I imagine) in the release.

Tell it to the server-makers, Doug. In the last few weeks, companies like IBM and Sun Microsystems have suggested year-over-year revenue losses are going from bad to worse. IBM, for example, said its server revenue fell 16 per cent in the second quarter, compared with last year. To be fair, Big Blue said its Intel products showed some growth, but these are lower-margin members of its lineup. At Sun, fiscal year 2002 revenue fell 32 per cent — one of the first indications Intel’s entry into the higher end of the server market is gaining momentum.

The optimism reflected in the Intel study should be put into greater context. To say you’ll be spending on servers within a year and a half to two years is a pretty safe range. Similarly, it is to be expected that most enterprises will be spending more on operating systems, thanks to Microsoft’s Software Assurance program.

With all due respect to Northstar, I place somewhat more credibility in the results of a recent CIO poll conducted by Merrill Lynch which said that over the next three to five years, companies plan to increase spending on servers by just 10 per cent. It’s not that these executives are any less interested in the open platforms Intel says it champions. They are simply exercising the “”customer caution”” IBM chief financial officer John Joyce referred to when discussing weaker sales.

If Intel actually believes the results of its own research, it isn’t reflected in its earning projections for the next quarter, which represented growth of zero percent to 10 percent instead of the usual 10 to 12 per cent. Pruning back personnel and cutting capital expenditures — including the US$5.5 billion it had reportedly earmarked for plants and equipment this year — also demonstrates more modest expectations.

The most telling statistics, perhaps, is the 27 per cent who told Intel their servers have trouble keeping up with the demands placed on them. That’s opposed to the 73 per cent who presumably are bringing the concept IDC dubbed “”good enough computing”” from the desktop to the server arena.

Everyone is looking for some relief from the downturn, and certainly Intel’s success from an architecture perspective has traditionally trickled down to its OEM partners. Right now, however, having 93 per cent of Canadian executives supporting industry standard server platforms is not enough. At this point, the only real signs of relief worth counting on are dollar signs.

sschick@itbusiness.ca

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