Intel's Top Three Challenges

When Intel reported quarterly results today, net income was short of Wall Street’s expectations. Sure, the chip giant remains a profit machine. And Intel is kicking around AMD these days. But that’s not good enough for skeptical Intel investors, who want stronger results. Fact is, the chip giant faces at least three major challenges in 2008. Here’s a look.

1. The Windows Vista Hangover: In a word, Microsoft’s much-hyped operating system upgrade was a dud. Instead of driving people to upgrade, Vista drove customers crazy and prompted many businesses to sit tight with their current PC infrastructure. Not exactly good news for Intel. If Microsoft takes 10 simple steps, demand for Vista and new PCs with Intel processors will surely rise.

2. Fearful Consumers: You’re trying to pay your mortgage, your home equity line of credit, car payments and your Visa bill. Opening your wallet for a new PC (especially when your old XP system is still chugging along) isn’t a top priority. Fact is, there are no “killer” applications for Vista, and your cash is tied up elsewhere.

Intel’s best hope is to continue pushing beyond the traditional PC market. Smart phones, mobile Internet devices and WiFi handhelds are the rage. Intel’s relationship with Canonical, focused on mobile Linux offerings, is a key effort that should pay dividends in late 2008 but perhaps not till 2009. (Check out item #44 in this list of 50 things you need to know about Canonical’s Ubuntu Linux.)

3. Virtualization: Intel was smart to embrace and evangelize virtualization. Businesses want to unlock the full power of their servers and desktops by running multiple operating systems and applications. But the virtualization craze has surely hurt Intel sales volumes — a least a tiny bit — because virtualization customers can do “more with less.”

In order to offset sales lost to virtualization, Intel needs to continue scaling its processors higher — pulling even more business away from high-end Unix systems and RISC hardware. Intel also will need to continue pushing its vPro technology as a way for partners to more effectively manage customer systems.

Of course, it’s important to keep Intel’s challenges in perspective. Intel’s per-share earnings were two cents short of analyst expectations, according to CNBC. That’s certainly not a disaster. But Intel shares did fall 13 percent on the news. Ouch.