Do signs from Intel, Dell point to real turnaround?

The news Friday that Intel raised guidance is not a surprise, according to Ashok Kumar, an analyst at investment bank Collins Stewart. "It's in line with seasonal trends and reflects strong back-to-school build in the PC food chain," he said.

Kumar added, however, that the strength of actual sales to end users of PCs won't be known until later. "The ramifications for Intel is that they'll continue to see benefits from supply chain rebuilds but where the rubber meets the road is the actual back-to-school sell-through."

Broadpoint AmTech analyst Doug Freedman also cautioned that though PC "build rates are accelerating" and "inventory replenishment" is taking place, "inventory replenishment means that there is no inventory so they have no choice but to build," Freedman said.

But he added that Intel's guidance "affirms the thesis that PC recovery is under way. Consumer now, Enterprise next." Recovery is initially driven by consumer PC demand and then by corporations, usually one to two quarters later, according to Freedman.

Both Freedman and Kumar stated emphatically that the Windows 7 launch, at this point at least, is not having as big an impact on build rates as previously expected.

Related to Windows 7 is the expectation that latent demand will kick in for replacing old PCs at companies--an expectation that Intel and Dell have cited in earnings-related discussions. But don't expect blockbuster replacement numbers, according to Kumar. "Yes, you have an aging installed base but we don't expect anything more than 20 or 25 percent to come up for replacement," said Kumar.

Adding to the uncertainty are Dell's second-quarter results, which were not that encouraging, according to Kumar. "Most of the revenue stream came from the public sector. Enterprise and consumer remains weak," he said, referring to Dell's profit, which was down 23 percent, and stimulus-package funds that flow to the public sector.

And Dell made this cautious statement on Thursday: "In the third quarter, the company expects seasonal demand improvements from the Consumer and U.S. federal government businesses...Dell believes a refresh cycle in commercial accounts is more likely to occur in 2010...(but) the company continues to see pressure in the form of component costs and areas of aggressive pricing in the near term, and continues to take actions to offset these items."

"The problem for the industry at large is that ASPs (average selling prices) are dropping like a rock," said Kumar. And on a macro level "employm