Top chipmaker Intel posted earnings last night which confirmed that the personal computer industry is alive - but not kicking.
It said sales would accelerate in the second half of the year with a powerful new PC processor.
In a first-quarter earnings report that did not inspire investors to push Intel's recently high-flying stock further, it said costs associated with ramping up new production lines would hurt gross margins more than expected.
The technology giant is ramping up production of its newest PC processor, codenamed Ivy Bridge.
This is expected to drive sales later this year and power a new crop of super-thin laptops dubbed "ultrabooks."
But the costs of upgrading the factories where the chips are being made is temporarily hurting margins, chief financial officer Stacy Smith told a conference call.
Shaky economies in Europe and the US, a growing consumer preference for tablets, and a recent shortage of hard drives due to flooding in Thailand last year have taken a toll on the PC industry. Demand in China and other emerging economies has helped sustain growth, and CFO Smith said business would pick up more as the industry recovers further from the hard-drive shortage and PC manufacturers replenish low component inventories.
"As we ramp Ivy Bridge and people gear up for these really capable ultrabook sales in the last half of the year, you'll start to see them refilling their pipelines with new products in the back half of this year," Smith said.
Intel is heavily promoting ultrabooks, which it hopes can stand up to the likes of Apple's Macbook Air, with some of the technological chic the iPad and other tablets epitomise. Some investors are concerned that expensive components used in them, like solid-state drives, make them too pricey for many consumers.
Analysts speculate Intel may have to sacrifice profit margins on sales of its processors to help make ultrabooks affordable.
Intel says manufacturers are finding ways to bring down costs of ultrabooks, and CEO Paul Otellini told analysts on a conference call that he was confident of the chipmaker's previous prediction the new light-weight PCs would account for 40% of all notebook sales by the end of the year.
Despite weakness in the US, global PC shipments in the first quarter grew 1.9% from the same time a year ago, research firm Gartner said last week. That was better than the firm's previous forecast of a 1.2% decline.
With worldwide PC sales barely growing, Intel has been racing to find a foothold in smartphones and tablets, where processors based on ARM Holdings' power-efficient chip designs are widely used.
It has recently shown some encouraging signs with announcements that its newest processors would be used in a handful of upcoming smartphones.
Many investors are waiting to see how successful the new handsets become with consumers before declaring the chipmaker a serious player in the mobile market. Growing expectations that Intel will be able to compete in mobile have fueled some of the gain in its shares in recent months.
Microsoft's long-awaited launch of Windows 8 expected later this year is also likely to cause a jump in PC sales, but the operating system will be Microsoft's first version of Windows that is compatible with chips designed by rival ARM.
Intel could also face new competition in low-end PCs from companies like Nvidia Corp and Qualcomm.
The company said revenue in the current quarter would be $13.6 billion, plus or minus $500m. Analysts on average had expected $13.45 billion.
The world's leading chipmaker said revenue in the first quarter was $12.9 billion, up from $12.85 billion the same time last year and a little higher than the $12.85 billion expected.
