Worldwide Trends in PC Markets

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Worldwide Trends in PC Markets
A presentation to the GIC/CHIPSA GroupsUSA and
Chile Strategic Partners in Business and Trade
ConferenceSantiago, Chile, March 2-5, 2007

• Paul Thomas
• Chief Economist, Intel Corporation
• paul.thomas_at_intel.com

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Risk Factors
Todays presentation contains forward-looking
statements. All statements made that are not
historical facts are subject to a number of risks
and uncertainties and actual results may differ
materially. Please refer to our most recent
Earnings Release and our most recent form 10-Q or
10-K filing available on our website for more
information on the risk factors that could cause
actual results to differ.
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Whats driving the Information Technology (IT)
revolution?

• Moore's Law is the empirical observation made in
  1965 that the number of transistors on an
  integrated circuit for minimum component cost
  doubles every 24 months. It is attributed to
  Gordon E. Moore ... a co-founder of Intel.
  http//en.wikipedia.org/wiki/Moore27s_law
• Moores Law and intense market rivalry create
  relentless product improvements. Add Good
  Enough Computing and you get constantly falling
  prices.

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How large are IT volumes and growth rates?

• ITs direct value added est. 2 to 5 of World
  GDP
• Rough estimates of PC sales in 2006 and growth
  rates in 2007
• Desktop units over 150M with about 5 YOY growth
• Notebook units over 75M with more than 20
  growth
• Server units almost 10M with over 10 growth
• Total units expected to grow around 10 in 2007

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ITs Place in the World Economy

• If the defining economists of the Cold War
  system were Karl Marx and John Maynard Keynes,
  who each in his own way wanted to tame
  capitalism, the defining economists of the
  globalization system are Joseph Schumpeter and
  Intel chairman, Andy Grove, who prefer to unleash
  capitalism. (Thomas L. Friedman, The Lexus and
  the Olive Tree, Anchor Books, 1999, p. 11)

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Where are PCs purchased?

• About 1/3 of purchases in Americas, 1/3 in
  Europe, Middle East, and Africa, and 1/3 in Asia
  Pacific
• Emerging countries share of World purchases
• 15 in 1995
• 22 in 2000
• 38 in 2005
• 48 in 2010
• Latin Americas share of Americas purchases
• 10 in 1995
• 13 in 2000
• 20 in 2005
• 30 in 2010

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• Estimated PC sales and growth rates in 2006
• Desktop units over 150M with about 2 YOY growth
• Notebook units over 75M with about 24 growth
• Server units over 9M with about 12 growth
• Total units grew about 9 in 06, 10 forecast
  in 07

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How large are IT volumes and growth rates in LAR?

• Rough estimates of PC sales in 2006 and growth
  rates in 2007
• Desktop units over 14M with about 14 YOY growth
• Notebook units over 2.5M with more than 55
  growth
• Server units over 0.2M with over 8 growth
• Total units expected to grow around 20 in 2007

2006 NB Sales by Latin American Country

• Chile is 3 in LAR NB sales
• 11 of NB sales
• 4 of DT sales
• 3 of population
• 4 of GDP

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What do we know about PC demand in Emerging and
Near Established Markets?

• Primary research suggests
• High interest in mainstream PCs among
  non-owning households and firms in emerging
  economies
• Interest in increasing density in households
  and firms already using PCs
• Number 1 reason for interest among non-owning
  households is Education
• Number 1 reported use and number 1 reason for
  interest in additional PCs among owning
  households is Entertainment. Good video and
  Internet access important.
• Price is reported as main obstacle for low
  income families, includes financing challenges
• Order of household additions may be
  electrification, refrigerator, TV, telephone,
  then PC

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PC Ownership Purchases Across the World
PC Purchases (US100)

• Low penetration rateindicates potential
  forfirst time purchases.
• As penetration increases, potential for second
  purchases develops.
• As PC density grows, market moves into
  replacement mode
• Until new compellingPC usage starts the cycle
  again.

• As many PCs to be sold in next 5 years as in last
  ten years
• Emerging markets are big driver of future sales
  about 30 of world sales in past ten years but
  nearly half of sales in next five years

Source MSF (latest HH penetration)
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Within Country Variations -Brazil

• SEC A segment with high penetration and already
  in the replacement cycle.
• SECs B/C with the opposite situation.
• SEC C has the majority of the potential consumers
• SEC D/E penetration rates and income similar to
  poor emerging nations.

SEC C incomes and PC penetration rates increasing
smartly. Poorest regions still Greenfield in
income and PC purchases.
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What PCs do Emerging Markets buy?

• Principally Desktops by 2006, less than 20 of
  client PCs purchased in Emerging Markets were
  Notebooks while Notebooks had 45 share in
  Established Markets
• Principally inexpensive Desktops in 2006, the
  average Desktop monitor purchased in China cost
  about 450 versus about 850 in the U.S.
• Less expensive Notebooks in 2006, the average
  Notebook purchased in China cost about 1000
  versus 1200 in the U.S. Some Notebooks priced
  less than 800 were purchased worldwide, but
  Notebooks expensive due to
• Greater cost of Notebook components
• Greater difficulty assembling Notebooks
• Import restrictions that affect Notebooks but not
  locally assembled Desktops

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What PCs will Emerging and Established Markets
buy next?

• Better Desktops and Notebooks
• Moores Law very much alive with advent of dual
  and multi-core CPUs

• Multi-core multiplies capabilities with less
  energy consumption and longer battery life

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What PCs will Emerging and Established Markets
buy next?

• Less Expensive Notebooks
• Notebook prices are falling about 10 per year
• Prices are falling faster in some protected
  markets
• As MNCs meet counter-trade requirements
• As barriers fall
• As programs to secure supply of Notebook kits for
  channel markets progress
• So long as Good Enough Computing prevails in
  Established Markets, Moores Law and intense
  rivalry will enable continued fall in Notebook
  and Desktop prices
• Two challenges
• Find ways to sell up in Established and richer
  Emerging markets
• Find ways to increase penetration in Emerging
  Markets

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New and Continuing Affordable PC Efforts

• MNCs continue to enter previously protected
  markets lowering Notebook prices first and
  possibly Desktop prices later
• Government Assisted PC Programs continue to be
  adopted to bridge the digital gap through tax
  amnesties and subsidies
• Industry participants and government agencies
  develop new financing programs including
  microfinance plans for small businesses.
• Industry, governments, and NGOs sponsor specific
  hardware and software programs to develop new PCs

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Affordable PC Development Challenges

• Most prominent current programs are One Laptop
  Per Child (OLPC) sponsored by MIT Media Lab and
  Classmate PC (CMPC) under development by Intel.
  Challenges for these educational and other
  efforts include
• PCs will not falter due to battery life shorter
  than school day
• Plan to repair broken student PCs and replace
  missing PCs otherwise digital divide enters
  classroom
• Curriculum developed and teachers trained to use
  PCs for enhanced educational effort
• Students will expect an interactive TV-like
  experience with broad-band connectivity and
  streaming audio and video.

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Affordable PC Supply Challenges

• Unless programs are profitable, will depend on
  subsidies from corporations, governments, and
  NGOs.
• Programs that rely on remnants from mainstream
  PC production are not scalable.
• Integrated circuit (IC) manufacture exhibits
  high fixed costs mainstream volume must be
  sufficient to cover these costs
• Market segmentation or rationing a necessary
  evil or price will be bid up to cover fixed and
  variable costs including cost of capital
• Rhetoric behind some Affordable PC programs
  suggests industry has somehow failed. Could
  distort most successful manufacturing program in
  history

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The Content Challenge

• Student PC programs depend on good software and
  curriculum ... but students want video, games,
  and social experiences.
• The Internet and software can provide sublime
  cultural and intellectual experiences and can
  educate and inspire us ... but adults want to
  play, to be entertained and diverted.
• If books, movies, radio, TVs have arguably
  failed to move us close to our potential, how
  will PCs, Internet, and social networking do
  this?
• Hardware and software advances in PCs and new
  devices such as MP3 players, smart phones,
  ultra-mobiles, Wi-Max, will be tremendous
  platforms for content, good and bad.
• Wikipedia, Google, MySpace, YouTube, and Second
  Life as well as podcasts, blogs, instant and text
  messaging are already changing our lives, but
  content is still the challenge.