Intel, IBM: Tech Resilience on Display

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Additionally, reports and rumors in recent weeks have suggested that PC makers had ordered more chips than they needed in advance of the fourth quarter, suggesting that demand might slow. Intel CEO Paul Otellini dismissed those concerns. "I have seen those reports, but we haven't seen it in the marketplace or in the requests from our customers," he said in response to a question during a conference call with analysts. In the first quarter of 2007 there was a serious glut of unsold chips (BusinessWeek.com, 4/4/07) left over from the 2006 holiday season.

Demand Holding

Chipmakers have been helped by an unusually strong demand for PCs that started in the second quarter of the year and has held strong in the third. It seems to be continuing into the fourth quarter. JP Morgan (JPM) analyst Bill Shope recently raised his forecast for 2007 PC sales to grow by 11.6%, versus a previous forecast of 9.6%, and market research firm IDC in September upgraded its own forecasts for the year as well. "From what I'm hearing, demand in October and November is shaping up to be pretty good," says Edwin Mok, analyst at Needham and Co. in San Francisco.

Can the demand last? It depends on how much confidence you have in consumers. Cody Acree, analyst with Stifel Nicolaus (SF), predicted a solid fourth quarter. "It's been an error to bet against consumer spending in the fourth quarter in each of the last five years," he says. He compared the outlook to the fourth quarter of 2005, when retailers and manufacturers prepared for slowed spending in the wake of hurricanes Katrina and Rita and increased energy costs, but saw strong sales despite them.

Indeed, Intel painted a positive picture for the coming quarter, saying that gross margins would hit 57%. CFO Andy Bryant attributed most of the margin increase to lower per-unit costs on microprocessors, chipsets, and flash memory chips.

"Certain sectors may be weak, but we're seeing decent demand from Dell (DELL), HP (HPQ), Nokia (NOK), and Motorola (MOT)," Acree added. "There is enough reason to be concerned, but not enough to call the game over. In the end, unemployment is low and job growth is decent. When people are employed they spend."

Assuming consumers and businesses keep spending on PCs and information technology services, companies like Intel and IBM will remain in the haves column.

Hesseldahl is a reporter for BusinessWeek.com .