Here's How Intel Corporation's PC Chip Sales Could Rebound This Year

At its first-quarter earnings release, Intel said to expect the total addressable market for PC processors to be down in the mid-single-digit range this year from 2014 levels. Although the company expects the overall PC market to be worse than it had previously expected, there's another dynamic at play that's having a significant impact on the company's PC chip shipments during the first half of 2015.

The inventory situationAccording to Intel, its partners in the PC supply chain reduced their inventory levels during the first quarter. The company also expects that its partners will continue to reduce inventory during the second quarter, ahead of the expected Microsoft Windows 10 launch sometime this summer.

However, by the third quarter of 2015 -- when Windows 10 is out -- Intel CFO Stacy Smith saysthe company expects its PC partners will then "rebuild inventory levels."

Another reason for customers to want to reduce inventoriesIntel's Client Computing Group data showed that notebook platform volumes went up by 3% year over year, although this was offset by a 3% decline in average selling prices. However, Intel said desktop platform volumes plunged 16% year over year; the 2% increase in average selling prices there did little to offset the decline.

In the low end of the notebook market, Intel is shipping its freshest 14-nanometer Braswell processors. Although Intel is known to introduce slight speed bumps of its chips, OEMs likely don't need to worry much about Braswell chip inventory purchased now going stale.

In ultrabook/convertible class devices, Intel is shipping relatively fresh Broadwell-based Core M and Core i-series processors built on its 14-nanometer technology. That said, Intel has indicated that during the second half of 2015, it plans to roll out the successor to the Broadwell chips, known as Skylake.

Intel's data suggests the notebook market is doing OK. This means system vendors should be able to sell Broadwell-based systems over the next couple of months until Skylake hits the market. Keep in mind, though, that Intel has indicated that Skylake-based notebook chips are coming later this year.

As a result, system vendors may still try to err on the side of caution to avoid building up too much Broadwell-based laptop chip inventory.

In desktops, where Intel is seeing significant weakness, the company is still fielding 22-nanometer Haswell processors. In a market where underlying demand is weak, it makes perfect sense for system vendors to want to get rid of 22-nanometer Haswell inventory, as it'll be quite stale when Skylake for desktop arrives, reportedly in the third quarter of 2015.

Can Windows 10 really make a difference?From what I've seen of Windows 10, it looks like a solid improvement over the prior Windows 8/8.1, particularly for desktop PC users. That said, I'm not convinced consumers are necessarily waiting for Windows 10 to buy new PCs.

What I do think is going on is that the system vendors have some significantly improved systems, based on both Skylake and Windows 10, ready to launch in the second half of 2015. In order for those system builders to get the full benefit from those product launches, it would probably help if the channel weren't filled with older-generation systems that need to be sold at a discount.

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Ashraf Eassa owns shares of Intel. The Motley Fool recommends Apple and Intel. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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