Intel: Global Consumer is Very, Very Good

Jeremy Glaser: For Morningstar, I am Jeremy Glaser. I am here at the 2011 Consumer Electronics Show. I am very pleased to be joined by Kevin Sellers. He is the Vice President of Investor Relations at Intel.

Kevin, thanks so much for taking the time today.

Kevin Sellers: You bet. Happy to talk.

Glaser: So, at your press conference earlier, you talked about how the consumer is king, and how having Intel processor consumer devices has been key growth for you guys. Can you talk a little about the state of the consumer right now?

Sellers: So, good point. The consumer is very, very good, except we've seen some weakness in North America and Western Europe, but what's interesting is, around the world places like Brazil, places like China, places like Russia continued pretty strong momentum there.

So I think sometimes we forget that this is a global business we are in and it really is the global consumer that's driving so many of the trends you see here. It's really moved away from being just a North American-centric consumer market into really a global consumer market, and so there are some pockets of some softness, but generally continue to be very stronger around the globe.

Glaser: When you think about the emerging market consumer, what sort of devices are they demanding, is it different from the consumers in North America, Western Europe?

Sellers: Yeah, it's a great question because it leads I think to a bit of a misconception when you say emerging markets, people think cheap, right? What's interesting is, in emerging markets we're finding that there's an aspiration, they want to participate in the digital economy and they don't want to participate in a way that's sort of low class. So we find for our products especially is the mix of products that we sell in places like Brazil or Russia or other places, is really quite strong and quite rich, very comparable to what you would see in more say North America or Western Europe.

So, we're seeing very much an aspiration desire to participate in sort of the way the rest of the world is participating. So, for us, it's a terrific growth engine, but it also isn't a growth engine that drives necessarily lower price products or cheaper products. It's a very good mix of product for us.

Glaser: On the enterprise side, obviously, that's still an important business, people have been waiting for a while for the corporate refresh cycles to really kick-in in earnest. Do you think its here, do you think businesses are ready to invest again?

Sellers: It's definitely here, but what we have not seen is a snap, sort of hockey stick kind of a pickup. What we've seen is a pretty consistent, from about the last three or four quarters a pretty consistent level of business from the enterprise segment and as we look out into 2011 – we're in 2011 now, it doesn't look like we're done. I think we've got several more legs to here.

So, it seems to be more of a – in the past you've seen some hockey stick kind of refreshes, this seems to more methodic kind of rollout of new technology, but many enterprises are dealing with the issues of having very old technology, because of the downturn that hit really in late '08 and early '09, its sort of put the kibosh on any spending for quite a while and so. It's now gotten a lot of enterprises to the point where they have to invest to stay competitive and we've definitely seen that in our numbers in the last few quarters and we're anticipating that t trend will continue through '11.

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Glaser: It seems like the catalysts for businesses to reinvest, is it financial where they feel strong enough to invest, or is it technological where a product like Windows 7 or new version of Office makes them excited to spend their money?

Sellers: It's a little of both, probably a little more of the later than the former. There is still some caution out there. People I think are little nervous, particularly enterprise, where if they can apply Band-Aids and baling wires, in many cases they do to kind of get through, to get a little more confidence. But confidence has improved no question, but new technologies create productivity gains and you hit a point in an enterprise where often a machine that you have, if it goes outside of a warranty, for example, you'll find actually the cost of owning an old machine goes up and exceeds the cost of a new machine.

So, it turns into a pretty simple return on investment calculation and we've seen for servers and for PCs in enterprises it's that return on investment calculation that has really driven a lot of this spending, because they can get a payback on that relatively quickly based on the capability of the technology.

Glaser: One thing that I personally wouldn't have predictted was that tablets would be big for enterprises. We have heard from a number of people that there has been tremendous demand for tablet devices. Talk a bit about Intel's strategy to get Atom chips into the tablet market?

Sellers: Well, Intel's strategy is very simple really if you boil it down. Our focus is to provide the best silicon platform for any computing device, tablets included. So, we have very specialized versions of the Atom processor that are designed for tablets, that we think will be best in class from a compute perspective, and those products will be rolling out in 2011 across – and interestingly across all operating system environments. So you can get Windows versions, you can get Android versions and you'll be able to get MeeGo software versions.

So, we will be able to support multiple operating environments and we'll do that really across any compute device, whether its tablets or PCs, obviously, or servers or smartphones, and increasingly embedded devices. So, we are really focusing on providing the best silicon for each targeted segment market and tablets is an important one. In fact, what we've done at Intel is, we've just taken one of our more senior and certainly one of the most talented executives, and created a tablet division that he has off running. His name is Doug Davis, and I think you'll see a lot of momentum there from Intel, but as you can see, as walk around there is a lot of devices with Intel silicon in today and that's just going to continue to grow as 2011 unfolds.

Glaser: Finally just talking a little bit about some of the media the people enjoy on their systems, Intel has developed some new technologies to allow some new first-run movies on and also with a AppUp to have Intel apps. How has it been working with some of these media companies? Have you seen a lot of resistance to moving way from more traditional channels and into new digital channels?

Sellers: In some ways yes, but I think the advent of things like iTunes, and Netflix, and other things you have seen the resistance start to fade a bit, right. But there is still a concern over – this is content that we own, it's proprietary to us, how do we make sure that we get paid for it and don't get ripped off, and I think that's where some of Intel technologies come in.

We have taken away sort of from software only protection schemes and been able to bake some of that into the hardware and created a level of sort of trust, if you will, from the content providers, so they feel much more comfortable. So, this Intel Insider technology that's part of our new platform, Sandy Bridge platform that we launched hear at CES, will provide that level of comfort.

So, now you have seen Warner Brothers and other studios that are going to be signing up to be able to – you will be able to get on day of rental, you can download a 1080p version of the movie on an Intel platform, because of that sort of trusted level of security that's built into the hardware. So, it's that kind of – I mean technology like that can solve some of those problems. If you can create greater levels of trust then you create opportunities for both technology companies as well as content providers.

Glaser: Kevin, thank you again. We really appreciate your time.

Sellers: You bet. Good talk. Thank you.