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Intel profit falls as consumers shun desktops in mobile world

Intel CEO Paul Otellini

Jae C. Hong/The Associated Press

The technology industry is slowly leaving the personal computer behind, and the world's best-known chip maker is having a hard time saying goodbye.

Intel Corp. announced its third-quarter earnings on Tuesday, posting numbers that illustrate the Herculean difficulties of transitioning from a desktop to a mobile world. The California-based chip maker generated income of $3-billion (U.S.), or 58 cents a share. Although that number is higher than what most analysts expected, it still represents a 14 per cent drop from the same quarter last year. Revenue also fell 5.5 per cent year-over year.

Intel's woes are at least partially a result of the global economic crisis, which has resulted in slowing personal computer and general technology sales, especially among businesses. Indeed, tech giant International Business Machines Corp., which also posted weaker than expected quarterly numbers on Tuesday, also blamed its woes partially on declining revenue in several overseas markets, including Europe.

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But Intel appears to be in the middle of a much bigger transition. Independent of the wider economy, the outlook for traditional PC sales is grim. Global PC sales have remained flat or have dropped slightly throughout much of this year, according to research firm Gartner Inc. Intel's PC group itself posted an 8 per cent slump in revenue in the third quarter, compared to the same period last year.

In comments accompanying Tuesday's earnings release, Paul Otellini, Intel president and CEO, didn't mention PCs at all, opting instead to focus on his company's forays into the mobile world.

"The world of computing is in the midst of a period of breakthrough innovation and creativity," Mr. Otellini said. "As we look to the fourth quarter, we're pleased with the continued progress in Ultrabooks and phones and excited about the range of Intel-based tablets coming to market."

But even as Intel re-focuses on mobile computing, the transition has not been glitch-free. Ultrabooks – the sleek, no-frills laptops once expected to fill the gap between desktops and tablets – have sold far fewer units than expected over the past year. Instead, consumers have opted for smartphones and tablets instead of the somewhat bulkier Ultrabooks.

According to Gartner, worldwide tablet sales are expected to hit 119-million units this year, almost double the number sold last year. More than half those tablets, however, are iPads, which are powered partially by a chip from Intel rival ARM Holdings PLC.

So far, Intel's sales of chips for tablets and smartphones have not been enough to offset declining PC sales. Competition has been fierce in the mobile chip sector, and besides the high-end names such as Apple Inc.'s iPhone and iPad, many devices tend to run on low-end chips.

Intel isn't the only chip maker struggling with the transition from desktop to mobile. Advanced Micro Devices Inc., which builds computer chips and graphics processors, has had a dismal year. Last week, CNET reported the company could lay off as much as 30 per cent of its work force, as it deals with declining consumer PC sales. AMD is expected to post earnings on Thursday.

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Even though Intel beat analyst expectations with its results Tuesday, the company's stock price was still down more than 3 per cent after hours. Investors were not pleased with the chip maker's weak outlook for the coming quarter. Intel expects revenue of about $13.6-billion in the fourth quarter, plus or minus $500-million, which would be almost unchanged from the revenue number during the same quarter last year.

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