Intel published some tough numbers this morning as it announced its first quarter results, recording a stark 25% drop in profits on the back of another decline in microchip sales. Yet the world’s largest chipmaker remained as arrogant as ever, confidently predicting a “low single-digit increase” in its revenues by the end of the year, despite the PC market’s continuing turmoil.

Overall, Intel’s revenue slipped by 2.5% compared to this time last year, amounting to $12.6 billion for the first quarter, while net income dropped to just over $2 billion. That Intel’s growth has slipped comes as little surprise in light of last week’s report from IDC, which showed that PC sales had fallen by a record-breaking 13.9% over the last quarter.

One of the few bright spots for Intel in the last three months was its growing data center business, which saw an 8% rise in sales compared to Q1 2012, totaling a healthy $2.5 billion. However, this only helped to offset what was undeniably a disappointing first quarter for Intel.

Let’s All Blame Windows 8

The PC market slump is old news, and Intel has been trying to innovate its way out of a hole for some time now, so far to little avail. It’s biggest move to date was to unveil the Ultrabook, a super-thin notebook design that it hoped would appeal to consumers who have been turning towards smartphones and tablets in increasing numbers ever since the iPad’s launch back in 2010. Following Intel’s lead, PC makers unleashed a flood of Ultrabook designs onto the market, but sales have largely been disappointing.

Intel hasn’t been helped by the decidedly lukewarm reception to Microsoft’s new operating system, Windows 8, which made its debut late last year.

Speaking last week, IDC analyst Bob O’Donnell pinned much of the blame for poor PC sales on Microsoft:

“At this point, unfortunately, it seems clear that the Windows 8 launch not only failed to provide a positive boost to the PC market, but appears to have slowed the market. While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button, and the costs associated with touch have made PCs a less attractive alternative to dedicated tablets and other competitive devices. Microsoft will have to make some very tough decisions moving forward if it wants to help reinvigorate the PC market.”

Intel’s Blind Optimism: Are They Stupid Inside?

Despite these poor results Intel is putting on a very brave face, insisting that it’ll return to low, single-digit growth by the end of the year. Chief Financial Officer Stacy smith told reporters at today’s conference call that the company was expecting big things from its new 22nm “Bay Trail” processor for mobile devices, as well as its upcoming “Haswell” chip that promises to beef-up processing power for high-end laptops. In addition, Smith claimed that an improving economy would also help Intel to edge itself out of the mire.

Success in the mobile arena will be crucial to Intel’s chances of a recovery, given that it lags far behind its main rival ARM, which powers most Android devices. To date, it barely has any presence whatsoever in what is fast becoming the most important segment of the computing market – Intel chips only began appearing in smartphones for the first time last year, and in the US it’s presence remains all but non-existent.

But with the release of Bay Trail on the horizon, which is set to power devices like Microsoft’s rumored 7-inch Surface tablet, Intel believes that the situation is all set to change:

“We are working with our customers to introduce innovative new products across multiple operating systems,” said Paul Otellini, Intel’s outgoing CEO.

There’s no denying Intel’s optimism, but is it realistic? The introduction of Bay Trail and the reputed lower cost of devices running it will at least allow it to compete with ARM-based mobile devices, but consumers are unlikely to be won over on price alone.

The problem is, Android devices are far too dominant right now, and very few run on Intel’s chips at the moment – instead, Bay Trail will primarily be used to power devices running Windows RT. But with Windows 8’s disastrous sales up till now, Intel is surely kidding itself if it seriously thinks consumers will be won over by these devices any time soon.

Also unlikely to help much is Haswell. Granted, the laptops running this will be amazingly powerful, but that won’t be enough to sell them. Consumers today want low-cost mobile devices and are happy to make do with less powerful (Android) tablets, meaning that only business users will be buying Haswell – and even then, how many are prepared to accept Windows 8?