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Intel achieved the best quarter in the company’s 42 year history

Intel has just announced its Q2 2010 earnings. It is the best quarter in the company’s 42 year history. Some of you might say, “what?!” With the financial crisis in Europe and the U.S., how can this be possible? Here is a direct link to their Q2 2010 report.

You will see in the report Intel’s revenue is derived 57% from “Asia-Pacific” excluding Japan. With Japan’s 11%, the whole of Asia accounts for nearly 70% of Intel’s revenue! China’s roaring economy is likely contributing a significant portion towards this record earnings. It is a little wonder that Intel is building a new fab in China (300mm fab in the northern Dalian using state of the art 90nm technology). Toyota too builds auto plants in the U.S., and for the same reasons: it would be too politically insensitive to not given how much Toyota derives its revenue from the U.S..

Of course, contrast Intel with Google (see “Google vs. China – Good vs. Evil?“) and the difference between these two companies are glaring. In February 2010, Intel Capital (Intel’s investment arm) announced partnership with China Investment Corporation (CIC), China’s sovereign wealth fund:

Under the agreement, CIC and Intel Capital will explore investments outside of China, combining resources to both evaluate potential investments and support companies in their next stages of development. While the scope of investment opportunities will be global, there will be cross border opportunities that will benefit both the U.S. and China.

Google has thus far done a lot to antagonize the Chinese government – and – intended or not, the majority of Chinese netizens think Google is disrespectful of Chinese law. Google’s management is not stupid. The only conclusion I’ll draw is that Google does not expect to be a long term player in the search market in China.

  1. July 14th, 2010 at 00:06 | #1

    yinyang,

    It ain’t just Intel … or U.S. companies riding China’s growth engine. It’s also Europe. Here is an article in NYT from Germany’s perspective.

    BERLIN — German companies are realizing that trade with China, more so than with Russia or other countries, is becoming its economic salvation.

    Germany is China’s biggest trading partner by far in Europe, and the trade is increasing by leaps and bounds, especially for high-value electrical and electronic goods. Germany’s auto industry, which suffered greatly during the global financial crisis, has recovered thanks in large part to a surge in Chinese demand for the top range of German cars. In fact, BMW raised its 2010 forecasts on Tuesday for that very reason.

    German companies also are investing heavily in training programs for engineers and computer experts in China as the country upgrades its industrial base. Even the big German retailing chains, like Metro, are setting up shop there.

    The new focus is evidenced by a trade mission being led by Chancellor Angela Merkel, starting on Wednesday. For the first time, she is combining Russia and China in one trip — with energy-rich Kazakhstan thrown in for good measure.

    Some analysts have criticized Mrs. Merkel for putting Russia and China into the same travel package. “No chancellor has done such a package tour,” said Alexander Rahr, Russian expert at the German Council of Foreign Relations. “It could send the wrong signal both to Moscow and Beijing.”

    But Andreas Schockenhoff, a member of the federal Parliament’s foreign affairs committee with special responsibility for German-Russian cooperation, said it made logistical sense, given that Mrs. Merkel would in any case be holding talks with the Russian president, Dmitri A. Medvedev, in central Russia.

    During her first term in office in 2005-9, Mrs. Merkel made the defense of human rights one of her foreign policy priorities. Now, some critics worry that issues concerning human rights and democracy are getting short shrift in the push to do more business.

    For Mrs. Merkel, however, exports are crucial to Germany’s economic recovery. She made that clear in her video podcast last weekend, in which she focused almost entirely on forging even closer economic ties with China. The rule of law and democracy got a brief mention at the end.

    German companies have repeatedly lobbied the government to become more active in promoting their interests in China, which the former chancellor, Gerhard Schröder, did with enthusiasm.

    “The potential is just huge for German companies,” said Philipp Ehmer, a macroeconomist at Deutsche Bank Research. “China has to import investment goods, such as power machines, engines and electrical engineering equipment.”

    While Germany remains Russia’s most important trading partner, the Germans are doing more deals with China.

    Over all, German exports to China amounted to 36.5 billion euros ($46.2 billion) last year, and imports totaled 55.5 billion euros, according to the German Federal Statistics Office. That was relatively unchanged from 2008, despite the economic crisis. By comparison, German trade with Russia fell 30 percent or more: imports were 24.9 billion euros while exports were 20.5 billion euros.

    During the first four months of this year, German exports to China jumped nearly 50 percent over the same period in 2009, to 16.1 billion euros. That was spurred by China’s stimulus package and the shift in economic development. German exports to Russia were 7.1 billion euros, up around 25 percent.

    “It is clearly visible that China is working hard to move up the value chain,” the German Chamber of Commerce in China said.

    With such growing demand led by China, German exports are almost back at precrisis levels. In electrical engineering, one of the most dynamic sectors, output from 2004 to 2008 rose 8 percent a year in Germany, according to Mr. Ehmer.

    BMW, Daimler, Mercedes-Benz and Volkswagen are all increasing their sales forecasts this year. Michael Rebstock, a BMW spokesman, said the company would export 10,000 3-Series vehicles to China this year to meet additional demand, thus providing another boost for German exports, and the economy.

    Despite the size of the market, German companies and business lobbies based in China do not hide the difficulties of doing business there.

    A study conducted by the German Chamber of Commerce showed that the protection of intellectual property rights was one of the biggest challenges. The study said 45 percent of respondents said it was a problem and 29 percent said it was a major problem.

    The other issue was the retention and availability of qualified staff, with 47 percent of the companies polled saying it was a problem and 27 percent saying it was a serious problem.

    Siemens has 80 companies and entities with over 40,000 employees in China, 98 percent of whom are Chinese. It says it is making big efforts to retain its staff by offering training and language programs — and also paying competitive salaries. Last year, the company had sales of 5.2 billion euros in China, an increase of 7 percent from the previous year.

  2. July 14th, 2010 at 01:06 | #2

    Good point, Allen. 50% of the worlds economic growth in 2009 was driven by China alone.

  3. July 14th, 2010 at 16:02 | #3

    Allen,

    You beat me to it. I was going to write something about a comparison on Google vs. Intel.

    But my take on Google is that it is rather PR/Image driven in its decision making. I will say that there are 2 kinds of companies today, especially in the tech area. 1st is the “Nerds”, who just wanted to make money. 2nd is the “Cool Nerds”, who thinks they are celebrities. Naturally, the 2nd type want the fame and the PR to maintain their “brand”, and thus make money from the “brand”.

    The 1st category includes companies like Intel, Microsoft, etc., who tend to maintain very generic brand images of doing public good by creating new innovation.

    The 2nd category includes companies like Apple and Google, who tend to think that they are the “cool kids” among the “nerds”. They try to build up some kind of mystique about their company, cultures, even leadership personalities. (such as Steve Jobs’ turtleneck sweater and ad vangard artistic look.)

    The 1st category usually do not stray into the territory of politics or social philosophy. They are usually humble enough to keep their own opinions to themselves.

    The 2nd category is all about politics, inside and outside of the companies. Their Politics is their brand name, they have to keep selling their brand name to make their products cool. Because they are the “cool nerds”, and that will create a following of loyal “nerds” who are willing to buy their products, (even if they are not really the best products on the market.

    *But I must warn the 2nd category devotees: You are treading on the thin membrane of your own economic bubble. It used to be in the last decade that any company in the Silicon Valley that claimed to work on “optical network” would see their stocks sell like hot cakes in IPO’s, or lots of people with a “.com” domain name would get Venture Capitalist investments.

    Granted, perhaps Apple and Google have had better results, but one has to ask, how much of Apple’s iPhone sales was really due to the fad of Apple’s “coolness”, and how much would one really pay for just to have the latest Apple iPhone, but really do nothing at all with it except to use it as a really bad phone?

    *In the end, this is perhaps the social phenomenon that is the worst part of Western societies, the need for “coolness” and fad.

    “Freedom” is grandiose and cool, but does it feed the starving?

    Worshipping celebrities of all kinds is cool, but does it drive the economy?

    I would prefer China to be great in humbleness. Granted, there are many Chinese today who show off their wealth too much, but I am glad that the worshipping of “cool” in China is still somewhat a youthful distraction rather than a part of the Chinese economy.

    *As for Google, the clearest signs of its double speak is in fact, its “uncoolness” in its core. It violates people’s copyrights. It only hires the type that fits its historical Ivy league young Comp-Sci majors, like its Stanford University founders, and it fires anyone who seem too old for the company. And Google’s ridiculously long and silly hiring process is all about putting “coolness” into basic discrimination.

    Make no mistake, Steve Jobs is a Ceasar, and Google is the “Revenge of the Nerds.” Both are more fiction than real.

  4. July 16th, 2010 at 00:48 | #4

    @r v,

    I agree – PR and “brand” helps Google a great deal. But I think there is a stronger reason than wanting to be celebrities and being “Cool Nerds.”

    I think in the long run, Google will have a hard time being a dominant player within any country outside the U.S.. Page ranking is a national issue. No country would want to fully subject their citizens to Google’s page rank (and bias) which is proprietary and secret.

    Google knows that.

    Google is facing backlash in Europe, in the U.S., and generally around the world. China the “bogeyman” is a great strategy for them. It’s great PR in the West.

    Google thinks very big and wants to galvanize all the public support it can around the world for the company.

    If Baidu is smart, it should counter-“smear” Google inside China. Like Dagong’s impeccable timing in releasing the sovereign credit report, now is a golden opportunity to highlight Google’s shady behavior.

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