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FX, coronavirus might rain on Intel’s Brazilian parade

Bnamericas Published: Thursday, March 05, 2020
FX, coronavirus might rain on Intel’s Brazilian parade

The strong rise of the US dollar against the real and the economic impacts of the coronavirus crisis, both on demand and supply, could be major obstacles for Intel in Brazil, although the company has not yet revised its projections for 2020.

The company has ruled out, for now, the risk of equipment shortages due to the coronavirus crisis, country manager Gissele Ruiz Lanza (pictured) told BNamericas and other media outlets in São Paulo.

According to the executive, who took over the Brazilian operation in November last year, Intel has plants in several countries and production has not been affected.

The executive admitted that, depending on the trajectory of the US dollar against the real, this FX cost will eventually be passed on to clients. However, no customer has requested the renegotiation of margins yet, she said. 

On Thursday, Brazil’s real hit a record low of 4.66 to the dollar, sliding almost 1.66%. Its losses against the dollar so far this year exceed 13%.

The performance of the Brazilian currency is one of the worst among the emerging markets and analysts say this is linked to sluggish growth, low inflation and declining interest rates.

Lanza's interview took place on the same day that Brazilian statistics institute IBGE released 2019 GDP data, which showed that Brazil's economy grew 1.1% last year, the lowest GDP growth in three years, as a fourth quarter slowdown pointed to a continuing weak recovery from the 2015-16 recession.

Investments fell and household consumption growth slowed.

On the other hand, the investment component related to research, development, innovation and IT accelerated in relation to the previous year. In addition, in the services category, the best-performing sub-sector was information and communications (up 4.1%).

Intel has placing its chips in Brazil on the need for innovation and renovation of companies' technology, among other things. Other bets are the gaming segment, artificial intelligence, IoT and the preparation of the ecosystem of objects for 5G. PCs are also a key driver.

"Our conviction remains for growth in Brazil in 2020. We have been growing in PCs in Brazil for three consecutive years, for example, and above the world rate," said Lanza

According to Lanza, who was born in Argentina and has worked for Intel there and in Mexico, Latin America has emerged from various crises in its history and now will be no different.

Responding to BNamericas, the executive highlights Brazil is one of the 12 largest markets for the group and the largest in the region, and that any hurdles would be temporary. "Intel must be present” in the country, she said.

In 2019, Intel reported US$72bn in global revenues, up 2.2% compared to 2018.

COSTA RICA FACTORY

Intel was hit last year by a mismatch in production of and demand for its products.

There was an unexpected and unforeseen increase in demand for components for datacenters, servers, PCs for the corporate market and even for the retail segment, she explained. The capacity of its existing plants was below that high demand.

"We conduct production planning for many quarters in advance, and what happened was that the forecasts we had didn't consider this increase in demand," the executive said.

To compensate for the problem, the company invested in recent quarters to expand the manufacturing and assembly capacity of its plants, Lanza said. But now coronavirus has reared its head.

It was under this planned capacity expansion that the company appeared to be reopening its Costa Rica plant, closed in 2014, as reported by Costa Rican media, citing local Intel sources.

Lanza, however, said she was unaware of the reports and therefore could not confirm the information.

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