Intel Posts Profit, But Faces Tablet Challenge

The Santa Clara, Calif.-based company recently posted an 8 percent rise in fourth-quarter earnings and has forecast revenue of $11.9 billion in the first three months of 2011, from $11.1 billion, based on the strength of its server market. The company said it expects sales to rise by 10 percent this year, boosted by demand for chips used in cloud-computing servers.

The positive earnings went against the expectations of the industry, which had forecast that the chip maker would suffer, based on the tablet market's cannibalization of the PC market in the October-December period.

Despite the good results, Intel still faces an uphill battle as the PC market recedes and the tablet market begins to ascend. Tablets cut into computer sales last year, to 3 percent growth from 5 percent a year ago, according to Goldman Sachs. Analysts anticipate sales tablets to reach 57 million units in 2011 and tripling to 171 million units by 2014, according to research firm ISuppli.

Intel, whose processors are inside 80 percent of the world's PCs, is made more vulnerable on its traditional product line as demand for notebooks and desk PCs slows. Many analysts believe Intel will struggle to catch up with rivals both on chips for tablets and smartphones. In December, it said its new "Moorestown" chip would be found in 35 tablets in 2011.

The company is working on processors for tablets, but currently has a very weak hold on the market, since its chips are neither in Apple's iPad, nor in most of tablets running Android software.

To make matters worse, longtime partner Microsoft last week said it plans to open Windows desktop software to multiple chip makers outside of Intel, such as rival ARM, whose power-efficient processors power widely-successful smartphones and tablets.

While Intel's server-chip business remains steady, whether that momentum can be sustained in the midst of changing computing market dynamics remains to be seen.