Good day, ladies and gentlemen, and welcome to the Intel Q3 twenty twelve Earnings Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mark Henninger, please go ahead.
Thank you, Patrick, and welcome, everyone, to Intel's Q3 2012 earnings conference call. By now, you should have received a copy of our earnings release and the CFO commentary that goes along with it. If you've not received both documents, they're currently available on our investor website, intc.com. I'm joined today by Paul Adolini, our President and CEO and Stacy Smith, our Chief Financial Officer. In a moment, we'll hear brief remarks from both of them followed by the Q and A.
Before we begin, let me remind everyone that today's discussion contains forward looking statements based on the environment as we currently see it and as such, does include risks and uncertainties. Please refer to our press release for more information on the specific risk factors that could cause actual results to differ materially. Also, if during the call we use any non GAAP financial measures or references, we'll post the appropriate reconciliations to our website, intc.com. With that, let me hand it over to Paul.
Thanks, Mark, and good afternoon, everyone. Our 3rd quarter results came in slightly above our revised guidance as PC related billings improved in September over the July August levels. We believe that Q3 PC sales grew approximately half of the seasonal norm and reflected flat enterprise sales. The billings upside we saw late in the quarter reflected our customers beginning their system production in advance of the Windows 8 launch later this month. As we look into Q4, we believe that the overall PC business will grow at about half of what we would expect from normal seasonality.
Our revenue forecast growth is below these levels as our customers are taking a cautious inventory approach In the face of market uncertainty and the timing of the Windows 8 launch, our forecast assumes an incremental decrease in inventory At our customers going into year end, our data center business saw the corporate server segment softening over the course of the quarter, with the cloud segment growing 50% over last year and storage revenue growing 27% to a new record. During the last month, I've met with all of our major customers. And while the market remains tough, I've been encouraged to see a renewed appetite for innovation across the entire ecosystem. Our customers are designing entirely new categories of PCs that will take advantage of our newest microprocessors Combined with Microsoft's new touch enabled Windows 8 operating system to bring dozens of beautiful new tablet, Convertible and Ultrabook designs to the market. In the coming months, consumers will See tremendous form factor in industrial design innovation.
There will be more than 140 core based ultrabooks, more than 40 of which will have touch. This will include more than a dozen convertibles that combine the productivity of the laptop with the convenience of a tablet. Many of the Ultrabook SKUs will hit the mainstream $6.99 price point with some burst SKUs well below even that number. Q4 will see more than 20 ATOM based tablets from 6 or more leading OEMs using CloverTrail. CloverTrail is a brand new SoC that will enable tablets as thin as 8.5 millimeters and as light as 1.5 pounds With 3 weeks of connected standby battery life And all of the compatibility that Windows users and Intel customers have come to expect, I'm excited about these products and the capabilities they bring to consumers and the enterprise.
Last month at IDF, we shared Details of our next generation core processor code named Haswell. Originally targeted at 15 watts, We've made significant advancements in microarchitecture and process technology that will allow us to move Haswell down into the 10 watt envelope, fostering even more innovation in form factor as well as new usage models like gesture computing and voice recognition. We continue to make progress in handhelds with Motorola's launch of the Razer I, the world's only 2 gigahertz smartphone that delivers better battery life than similar competing devices. In general, I see the computing market in a period of transition, but also a period of breakthrough innovation and creativity. Intel has a history of navigating the industry's transitions and emerging better and stronger.
With a hardware and software roadmap that spans the smallest portable devices
to
the most powerful data center servers and world leading silicon process technology. We're excited about the future and confident in our strategy and prospects in all the markets we serve. With that, let me turn the call over to Stacy.
Thanks, Paul. 3rd quarter revenue came in at $13,500,000,000 flat from the 2nd quarter and slightly better than our revised expectations. For the Q4 of 2012, we are forecasting the midpoint of the revenue range at $13,600,000,000 up 1% from the 3rd quarter. The slight increase in revenue in the 4th quarter reflects the caution we are seeing in the order patterns of our customers as a result of concerns about the global economic environment, Ongoing consumer softness in mature markets and a slowing enterprise market segment. As a result of weaker than expected demand environment, We have taken several actions.
We significantly cut factory loadings at the end of the quarter and will maintain low factory utilization rates throughout the 4th quarter. We expect these factory adjustments to help bring down our total inventory levels by approximately $500,000,000 Additionally, we are redirecting equipment in space to 14 nanometer from older generation technologies. The result of this is a $1,200,000,000 decrease from our July forecast for capital spending, with the midpoint of our capital spending forecast for the year now at $11,300,000,000 Moving to gross margin. 3rd quarter gross margin of 63% was slightly better than the midpoint of our revised guidance and flat to the 2nd quarter. We are forecasting the midpoint of our 4th quarter gross margin range to be 57%, down 6 points from the 3rd quarter.
2 thirds of the gross margin decline is a result of the excess capacity charges. In addition, we expect an increase in inventory reserves As we start production on our next generation microarchitecture product, code named Haswell, which we expect to qualify for sale in the Q1 of 2013. Taking a look at the balance sheet, total cash investments ended the quarter at $10,500,000,000 down approximately $3,000,000,000 to the 2nd quarter. We generated over $5,000,000,000 in cash from operations, paid approximately $1,000,000,000 in dividends, We purchased nearly $3,000,000,000 in capital assets and had roughly $1,000,000,000 of stock repurchases. In addition, we closed our $3,000,000,000 Strategic Equity Investment in ASML.
As a result of lower than expected sales in the Q3, inventory grew by approximately $400,000,000 More of all more than all of the increase in inventories came from the Ivy Bridge product ramp with an offset as we reduced inventory levels We are taking aggressive tactical actions to reduce inventory levels and redirect space and equipment to 14 nanometer. But we are also seeing some important positive trends in the market. In the client space, we are seeing innovative products coming to the market with Intel Inside, ranging from Ultrabooks to smartphones to tablets. In the data center, we expect to continue to benefit from the build out of the cloud And the substantial performance cost and power benefit that our enterprise customers get from our leadership products. Underlying all of this, Our manufacturing advantage is extending over the rest of the industry as we start the ramp of Haswell, our new microarchitecture on 22 nanometer and begin to build out our 14 nanometer factory network.
The combination of the tactical actions we are taking coupled with new products and design wins across all segments and our manufacturing leadership will all benefit our business over the coming quarters. With that, let me turn it back over to Mark.
All right. Thank you, Paul and Stacy. We'll Patrick, please go ahead and introduce our first questioner.
Our first question comes from Ambrish Srivastava from BBMP, your line is open.
Last I checked, I was still at BMO. Hi, guys. First question is, Stacy, just on the startup cost cadence, Given that you're moderating the 40 nanometer a little bit, typically, if I remember correctly, it's a 2 quarter cadence. How does that play out this time around?
I'm not seeing anything that would cause it to be off of historical patterns. So if you look at what's happened in odd number of years when we start up a new process technology, you'll see an increase in start up costs that hits Pretty significantly in Q1, goes up some more in Q2 and then will start to
come down from there. So I'm not seeing anything that would cause that to
be different from historical patterns.
Okay. And then my follow-up is on the CapEx, Stacy. Does that change from what you had given us during the 2012 Analyst Day for 2013?
Yes. We're not putting out a forecast yet for 20 'thirteen CapEx, we're reducing 'twelve capital pretty significantly. 2013 will be a function of the unit growth that we see in 'thirteen and our expectations For 14. Yes, right now, we want to fight through a Q4 where we don't have a lot of visibility before we lock in on a 2013 number.
Okay, that's fair. Thanks.
Our next question comes from Doug Friedman from RBC Capital. Your line is open.
Stacy, you gave a number at the Analyst Day though regarding full year 2013 gross margin. Do you want to take Can you give us some idea of what range you're looking at now that you are taking the actions you're presently communicating today?
Yes. I'll we'll provide a forecast for 2013 when we get to January. So again, similar to the prior question, I think It's premature to provide a forecast at this point across revenue or gross margin or CapEx for 13. We need to fight through Q4 first. There's a couple of things that I think you can model for 13, though, that are helpful.
We just talked about the start up costs. We're starting at 14 nanometer. Historically, that's worth 2 to 3 points of gross margin. In terms of the excess capacity charges that we're taking, Yes, we're taking a lot in Q4. I think we'll see that significantly better in Q1.
And then by the time we get to Q2, I don't expect Really any excess capacity charges. So yes, you'll see that play out. And just to size those two things in Q1, I think the excess capacity charges and the start up costs Are kind of roughly similar orders of magnitude. So those 2 things should offset. Beyond that, I'll wait till we get to January because there's Many other moving parts for 2013.
So as my follow-up, on the revenue side, we did see some movement this quarter, probably not Completely expected PC client a little bit better than maybe you might have expected when you preannounced. The data center, however, though, is seeing some ASP Key movement that caused that revenue to be soft. Can you communicate to us what your outlook is as far as the revenue mix for next quarter? And maybe what That might have due to our gross margin number.
Yes. So just to Come back to Q3 for a second, then I'll answer your question on Q4. What we saw specifically in the Client side, it played out roughly as we thought when we did the pre announcement. And if you step back from that, what we saw was Some growth in consumption, but our customers continuing to manage inventory is very lean. And in fact, we saw Across the worldwide PC supply chain, we actually saw a reduction in overall inventory levels in Q3.
And normally in Q3, You'd see an increase, so you can kind of get a sense of how lean they're managing things. In the data center, what we saw was strong growth In the Internet IP data centers, the cloud, that was up actually 50% from a year ago. It was offset by we started See some weakness on the enterprise side, and that's where you're seeing a lower ASP just because of the difference in ASP between those two segments. As we go into Q4 in terms of the overall mix of our business, when I look at the gross when I I'll direct you to the gross margin recon. There's an issue there with the excess capacity charges.
We have some builds on Haswell. Really, ASP is not impact in gross margin. And so you can take from that that we expect it to continue to be kind of similar mix in a roughly benign ASP environment.
Thank you. Our next question comes from John Pitzer from Credit Suisse. Your line is open.
Yes. Good afternoon, guys, and thanks. Paul, how do you assess how much of what's going on in the PC market right now is macro Timing of Windows 8 versus kind of the more structural bearish view that tablets and smartphones are just plain and simple eating into the PC TAM, how do you think about those dynamics? I think it's
a bit of each and I'd be reticent to quantify it, John. Clearly, We saw a softening in the consumer segments. We talked about that when we did the Pre announcement about a month ago and the surprise there was that China, which had been very strong, has turned weak on us On top of a continuing weakness in the mature markets of the U. S. And Western Europe.
However, having said that, we do believe that When the numbers are all in, the PC consumption did grow in Q3 at about half the normal seasonal rate and will also grow in Q4 at about half the normal seasonal How much of that halfing is macroeconomic versus the timing of the Windows 8 build and the Share of wallet, war for tablets versus PCs. Is TBD and we'll know a lot more about that 90 days from now After the Windows 8 launch, after we see Intel based tablets start shipping, when people start playing with the operating system and Have all the touch based ultra books out there. We'll know a lot more. So we'll try to quantify that a bit more for you in 90 days. But right now, it's a bit of each.
And then guys, as my follow-up, Stacy, I appreciate the fact that it's too early to talk about next year CapEx. But underutilization in Q4 is clearly helping you kind of lower this year's CapEx a bit. And back in 'nine off of about half the CapEx I think the underutilization around the credit crisis saved you about $1,500,000,000 in capital spending.
Is this going to hold where As we
go into 'thirteen, the lack of underutilization will allow you to save on CapEx. And if you're twice the base then, can we think about a $3,000,000,000 number in total?
Again, it's too I'm not going to get that level of granularity. You can see that 2012 capital spending is down $1,200,000,000 from what we thought A quarter ago, although we had some indications that we were trending down a little bit. So that's A big chunk, and we'll talk about 13 when we get to January.
Great. Thanks, guys.
Our next question comes from David Wong from Wells Fargo. Your line is open.
Thanks very much. You commented on Clover Trail tablets. Are you seeing many Ivy Bridge tablet designs in addition to the Microsoft Surface? And can you give us some idea of how many tablet makers you're currently working with on Haswell tablets for the future?
Oh, boy. I can help you on the former, not the latter. On Ivy Bridge, there's I'd say a handful, 5 to 8 something like that that I've seen Off the top of my head. And for Haswell, it's too soon to tell. I mean, we have When you start seeing an Ultrabook with a detachable touchscreen, is it a tablet?
And it's based on Hassell. Is it a tablet? Is it an Ultrabook? Or is it a convertible? I don't know.
We'll have to invent some names for these things as we go along. What I can tell you is that the level of innovation there is really Unbounded, I haven't seen this in a long time. But I think in terms of just loop the near term selling season, There are some Ivy Bridge ones. They tend to be skewed more towards the enterprise where our customers believe that their customers, the CIOs of the world, want a high performance tablet that is compatible, that is secure, that runs all their enterprise software. So I think that's where you'll see those migrate Versus, say, the Clover Trail stuff, which was going to be a bit more consumer centric.
Great. And you said you expect to qualify Haswell in the March quarter. Will So it'll be appearing in systems in the March quarter or should we look for that a bit later in the year?
First half. Thanks.
Our next question comes from Christopher Danley from JPMorgan. Your line is open.
Thanks, guys. So Paul, can
you just give us maybe just your take on what you think it's going to take to pull the PC industry out of this funk? And do you think that with the advent of Tablets, cannibalizing notebooks that we're never going to see the growth in PCs we used to, is it going to be Something lower than what we've been used to?
Again, since we don't know how much of the The flatness that we're seeing this year in PCs is a function of which of those variables that we talked about earlier. It's pretty hard to say That in good economic cycles, we wouldn't return to normal growth. But what I get back to is, as I look out here, I don't think And I've said this to you guys before, I don't think that the tablet as we've seen it evolve over the last several years Is the end state of computing. The innovation is going to start pouring in now that you have widely available SKUs on a widely distributed operating system that's now that will come from multiple vendors that can unleash their creativity. And what I can't predict is what form factor is going to win here, but I do think that some of these things that have Sort of the best of both worlds, the performance and the capability of a laptop and the form factor and convenience of a tablet are likely to be the things that are most
are the most high volume runners, but we honestly won't know for 12 months. Thanks. And a follow-up question for Stacy, just a clarification on the Q1 gross margin, Stacy. So you've given us what The utilization rates under utilization costs look like if we look at typical seasonality for Q1, you guys are probably down like $1,000,000,000 or something like that. So If sales are down $1,000,000,000 and depreciation is up a little bit and start up costs are up, can the margins be flat with current utilization rates and what would inventory look like?
You're trying to back me into a forecasted Q1 and I would maybe make a Couple of comments though to your thesis. One is based on what we're seeing in the back half of this year, I am less convinced that Normal seasonality is a great guide. What we're seeing is the customer is managing things very cautiously. Depending on how sales go, I think you get multiple different outcomes for Q1, and we'll get there in a quarter. In terms of inventory levels, We're too high today, just because the unit volume that we expected in September didn't materialize.
We're under in what we thought from Q4. That's one of the reasons we're bringing the utilization down. We'll bring inventory levels down significantly in Q4 back into a healthy range and our That would be to keep them in that
range. Okay. Thanks a lot.
Our next question comes from C. J. News from Barclays. Your line is open.
Yes. Hello. Thank you for taking my question. I guess just as a follow-up on the inventory side, can you discuss what you're seeing downstream, particularly in China? And then also as part of the healthy days, my math suggests exiting December at roughly 75 days.
Is that Kind of the new normal we should think about for you guys in a lower PC growth rate environment or do you think that you need to be something lower?
Let me try the China one, CJ. I'll do this. I can't do that. Inventory. I was just in China a week and a half ago, so I've got a fairly current view.
I see the same situation. I mean, China as a manufacturing center It's reflecting the comments that we had in our commentary, which is that the OEMs are being very cautious with their inventory commits at this point in time For all the reasons we've discussed and it's as lean as we've seen it in normal times without the shortages of say the hard drives of last year. In terms of the channel inventory, there really isn't very much. I went into Tier 3 City. You don't see things stocked up or stacked up on pallets and stuff.
People are generally I think most of our customers worldwide spent a lot of Q3 thinning out their Windows 7 inventory, so they wouldn't have an overhang at the launch. And that accounts for a lot of this inventory shift of our billings versus the consumption That we've been talking about. And now with the launch of Windows 8 coming in a week or so, you'll see a new round of Build and hopefully consumption.
Yes. And then in terms of the inventory targets, yes, your The number you threw out is in the 70s is where we're planning to get to in Q4. Just to put that in perspective, maybe 2 other comments What we're doing, one is, we're taking down utilization in the factories down to sub-fifty percent, again, to take inventory out And free up the opportunity to move both space and equipment and redirect that to 14 nanometer. So it's a pretty significant series of actions. And I also want to point to the inventory that we have in place, while it's in terms of units more than I want to hold, it's on the order of 70% Ivy Bridge, so it's our freshest stuff.
So I'm not worried about the salability of the inventory, but I do want to bring the aggregate inventory levels down. It's just healthier for us to have
Thank you. Our next Question comes from Kevin Cassidy from Stifel Nicolaus. Your line is open.
Thanks for taking my question. It's maybe along those lines So of the utilization or under utilization. In last year's investor meeting, Andy Bryant had presented a His presentation was around the risk of too much capital spending and that Intel had 1 more fab building than needed. What would we do? Is this part of that plan?
Are you mothballing 1 building?
I'd say it's more down the line of my presentation where I When we that we're constantly trying to match our capacity that's in place to the demand. We were putting in capacity for a bigger That second half than we got. We're going to now make adjustments so that we can move capacity to 14 nanometer and bring our inventory levels down. It doesn't change the fact that our planning model, we're always looking to make sure we have the ability In terms of what we call white space, so some unallocated factory space as well as some equipment to respond to upsides. It's The risk of being caught short and the cost of being caught short is much more than the cost of being long because as you can see, when we get a little long, we can take actions and within a 6 month period, we can get back aligned.
If you're short, it can take you 2 years to get caught back up.
Okay. I see. And with the reuse of equipment, Can you give an idea of what percentage that is that can be reused from 22 nanometer to 14?
Yes. It's not different than our historical So you can think of it in the range of 80% to 90% of the equipment that we buy at 22 nanometer is usable at the 14 nanometer node. It's And that's not by accident. It's one of the things that technologists spend a lot of time to make sure we have these forward reuse paths because it gives us great flexibility to respond to things like we're seeing today. Okay, great.
Thanks.
Our next question comes from Daniel Berenbaum from MKM Partners. Your line is open. Yes. Hi. Thanks for taking the question.
When you
talk about clearing inventory, does pricing come into play in any fashion Jenny, on the PC side, you talked about pricing a little bit on the data center side, but clearing inventory on either the consumer side or the enterprise side, is that Helping and then follow-up also a little bit on an earlier question. Is there anything else that Intel can be doing to spur demand? We've obviously seen sort of Microsoft Take matters a bit into their own hands with some of the designs that they're trying to sell. Is pricing helping you spur demand? Or is there something else that you can do?
Short answer to your question is no on pricing. The pricing is we do forward pricing with our customers. It's priced, I think aggressively to move into the mainstream price points in terms of the stuff I talked about. If you look at our PC group numbers Quarter over quarter, the ASP was about flat year over year, it was down a bit mobile was down a bit. What that reflects was really us going after Some incremental share at the bottom of the market.
So it didn't really change pricing, but it changed the mix. And we thought it was time we could do some of that and we did opportunistically. That's more the driver on that side. In terms of demand stimulation, A lot of what we're doing is really to make sure that the feature set of this season's Ultra books are really Consistent with where the market is. That's why we've been so focused on working with our customers and the ecosystem to, for example, bring the touch cues in.
6, 8 months ago that we did not have line of sight to 40 out of 140 SKUs of Ultrabooks being touch enabled. It was probably 5 or 10. We're up to 40 now. So and that's just going to get bigger as we go into 2013. So working with the vendors and the glass manufacturers to bring the cost of touch As an increment down has been one of the key things we think we can do to drive demand.
Okay.
Thanks. And related to pricing, you've obviously got a wounded competitor out there now. Are you seeing that competitor get aggressive on Pricing in especially in this environment, your competitors talked about a big inventory write down in its negative preannouncement. Are you seeing lower pricing there? And is that in any way impacting you?
Well, I think you have to ask them their strategy for pricing. As Paul said, we're we had last quarter and this quarter, we believe we've won some share at the lower end of the market. That's our strategy here. So you got to ask them the question of their pricing strategy.
Okay, great. Thanks very much.
Thank you. Our next question comes from Jim Cavallo from Goldman Sachs. Your line is open.
Thank you so much for taking the question. Guys, kind of questions staying on the margins. In the context of cyclical history, what we're seeing here isn't too unique from the standpoint of Yes, the margins usually decline pretty significantly on the other side of the big CapEx cycles. I think the average margin decline is 700 basis points. The peak is 1300 basis points.
You're down about 1,000 basis points now from the peak gross margin, so pretty normal. Is there anything you see in that context that would cause this Margin declined to be worse than some of the more dramatic declines you've seen historically?
Well, I think that when you go back And look, across a long range of history, when we've seen a situation where the industry got a head on capacity, The time that it took to get things realigned typically was much longer than 2 quarters. I think we've done a lot to improve that responsiveness and I think That has been helpful. And you saw that in 2,009. But if you go back before that, as opposed to a couple of quarters, you were sometimes talking a couple of years to get capacity back I think that's different. And then the other thing I'd point to that's different is while the decline is Significant and we're taking some excess capacity charges.
If you compare 2,000 what we're going through now with 2,009. In 2,009, we were into the mid- to high-40s. Now we're in the mid- to high-50s. And I think that really points to the Structural improvements we've made in our business in terms of cost and mix and the competitiveness of our products. So while It may seem the same to you.
It actually, I think it's faster and we're still maintaining higher gross margin.
Helpful. For my follow-up questions, kind of Specific to the data center group, some of the ARM based server players are arguing that they can now address A significant part of the workload from the Google's and the Amazon's and Facebook's data centers, is that some competitive dynamic that you're seeing in that area? Or do you think that ARM still isn't competitive in that realm?
Well, I mean, they need to add feature sets like 64 Bits Some ECC and RAS features to be particularly in those environments to be considered. So that may be a road map Planning opportunity and that they're pushing with the products that are being shipped today are certainly don't have those feature sets. You can look at some of the workflows, things like Hadoop, Jim, that would be conducive to, let me say, an array of micro servers. And those can easily be run on ATOM. We've got our 2nd generation of the ATOM microserver chips The first one on 32 nanometers.
Now we're now sampling the 22 nanometer one. And we've decided that we're just going to push Adam as hard as Possible in this space and have it be a better offering for our customers than having to switch all their software and worry about all the reliability features.
Helpful perspective. Thank you very much.
Our next question comes from Joanne Feeney from Longbow Research. Your line is open. Thanks.
Yes, I was hoping you could elaborate a little bit more on what you're seeing, what you saw last quarter and what you expect this quarter in terms of the Mix of demand, both across consumer and enterprise geographically and then PC, notebook Book Desktop, just some more color, if you would, on what kind of mix you're seeing out there and where you expect it to go and what you're relying on to get those inventories Clear, say, by the beginning of 2013?
Well, let me start with the last part. The inventory thing is straightforward. The work The finished goods that we're expecting to come down over this quarter are our Ivy Bridge products, which is a mainstream high end product we have today. So as the As the market picks up, Windows 8 launches, Ultrabooks pick up and so forth, that just consumes that inventory. And as I said earlier, in my And Stacy's, our OEMs are running very lean right now.
So any kind of demand blip would cause us to be able to We can reduce that even more perhaps. In terms of the mix, there's really not Much more to add than we put in our pre release and in the comments today, which is that the U. S. And Western Europe PC markets Remain soft in terms of consumers. The change that we have seen and we talked about at the preannouncement was that the enterprise PC market has gone relatively flat now, and I think that's just a reflection of large corporations Making hard decisions on CapEx versus people and where they want to put their investments and now that seems to have spilled over From the client side of the enterprise to also the data center server part of the enterprise.
And I think we'll see how that sorts out over the next Quarter or so as CEOs and CIOs make their next round of decisions. In terms of China, the slowdown there was It's principally a notebook business and the slowdown there was in consumer notebooks.
And I just add in DCG, We saw strength in the cloud customers and over the course of the quarter, weakening in the large enterprise purchases of Server chips. So that the mix there was more to the cloud.
Which had been strong in the first half.
Which had
been strong in the first half, yes.
And then as a follow-up, Stacy, could you let us know what happened with units versus ASPs and PCs versus servers last quarter?
Yes. It's actually In the CFO commentary, Joanne, but in general, we saw PC units up 1% versus the prior quarter, and data center units were also up 1%. This is a quarter on quarter compare.
Sorry, in the ASPs?
The PC ASPs were down 1% and the server ASPs were down 7% Based on the mix kinds of things I've been talking about.
Right. Okay.
Great. Thank you.
Sure.
Thanks, Joanne.
Our next question comes from Patrick Wang from Evercore Partners. Your line is open. Great.
Thanks so much. First question, I want to see if you could go back to China. And Paul, maybe kind of recap some of the feedback you're hearing from those meetings you did have because I mean, it seems like the slowdown in China has really Impacting global PC demand and weakness out there. So just curious what's the latest you're hearing?
Well, there is what I don't know is how much of this is in China is their own Macroeconomic cycle slowing down. I mean, the GDP forecast for the year have come down for next year have come down. There's also A reasonable amount of anxiety around the change in government and that tends to put a little bit of nervousness into the system. And what I don't know is how much of that clarifies after they change because people it's not so much they don't know who's coming in, the issue is what are the policies In terms of stimulus and taxation and so forth, they've been pretty generous the last year or so year or 2 rather In terms of stimulating domestic consumption, and the question is, will those policies continue or not?
Right. Okay. Got you. That's helpful. And I want to talk quickly about data center.
The trend that we're seeing in ASPs right now is down 7% last quarter. I'm just kind of curious how you see that over the next couple of years here because I think when we take a look at your cloud segment, we're forecasting pretty robust growth there. You talked about 50% growth last quarter. As that continues to really outstrip growth from your more traditional server customers, I mean, what is it what kind of impact is it due to your Blended ASPs?
Well, I think the better comparison for the data center is year on year, which was the ASP was up a bit, right, up 1%. The down a bit was really a big shift in the mix between what would be normal enterprise growth and slowing in the enterprise growth. In general, for storage, for networking and I think for some aspects of the Internet data center, the mix is actually quite good. Sometimes they go to 2 way machines versus 4 way machines, but they tend to provide fairly high mix. And the one of the fastest growing The business is high performance computing, which buys the top of the line of our SKUs.
So as those product lines get fleshed out more and more, I really don't see the mix shifting away from where it's been the first half of this year. I see the current mix It's being a bit of an anomaly as a result of the softness of corporate data center server purchases.
I see. Okay. That's helpful. Thanks so much.
Thanks, Patrick. And operator, we have time for 2 more questions.
Our next question comes from Glenn Young from Citi. Your line is open.
Thank you. Stacy, maybe first question for you. As you sort of think Thinking about your capacity for 2013 and you're obviously taking action now, what kind of PC environment are you notionally targeting? And maybe just an up or a down is
Yes, I'm going to be less specific. It's 1 or the other.
It's 1 or the other, yes. It's either up or down or slightly. Yes. I'm going to hold off on triangulating on a Sure. I want to have the 90 days to really think about what we want to put in place.
Fair enough. And then Paul, maybe this question for you. Notionally, we wouldn't expect to see when we have an operating transition Like we're seeing a spark to PC demand and yet we don't seem to be seeing that. And I wonder if you could just give us your thoughts as to why you think this time that's not happening? I don't think we don't we
know it's not happening yet. I'm very excited about this operating system. As I said earlier, it brings a touch Into the mainstream for the first time and we know that the last couple of years, tablets have Change the paradigm for people to use computers. They like touch. They like to make their photos get larger with their fingers and everything else It's good about that.
And so I think we haven't had a chance to really judge how the consumers We'll embrace this in mainstream PC space or not. I'm very optimistic as we've been playing with these things and we see the Products being built and we take them out for testing to consumers and we've now run tests on Windows 8 Touch enabled Ultrabooks in a number of the major cities around the world across multiple demographics, the feedback is universally positive. So I think it is too soon to tell. I mean, the darn thing hasn't even launched yet and we'll know a lot more about this 90 days from now.
Fair enough.
Thanks. Thanks, Glenn. Patrick, please go ahead and introduce our last questioner.
Our last question comes from Sumit Danda from ISI. Your line is open.
Yes. Hi. Two questions. First question for you either Paul or Stacy. You noted that inventories are lean, but And you expect half the normal seasonal growth in PCs, but you're dialing down that number.
If the setup is lean from an inventory perspective, why are customers choosing to take down inventories even further? Or is that just A cushion you're building into your forecast for the Q4?
I think it's just caution. We are seeing a very Cautious environment there. I think it's a combination of what they're seeing from a macro standpoint and a slowing enterprise and an operating system transition and a weak Consumer Mature Market segment, I think all of that is just leading people to be cautious. Ultimately, I think leaner inventory levels are Healthy, but that's what we're seeing right now.
My second question was actually a follow-up on the server ASP stuff that was talked about earlier on the call. And I guess, my question was, I think you talked about the fact that you have twice as many SKUs with Romley With sort of the $1,000 mark from a pricing perspective, has the uptake on the higher SKUs stalled? And I guess, Sort of in line with this question, I was a little confused by why the cloud mix would be so much poorer versus the enterprise mix Because I would have assumed that the uptake in cloud would be a richer mix and that would actually help your ASPs relative to A
lot of the cloud is two way versus Enterprise is 4 ways. I mean, 50,000 feet, that's the simple answer. Okay.
And then the uptake for Romley, I'm sort
of Romley has been quite good. Yes.
Okay. All right. Thank you.
All right. Thanks, everyone, for joining us today. Patrick, please go ahead and wrap up the call for us.
Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all