Intel warning casts cloud over CES

Intel's fourth-quarter warning is not only bad news but bad timing. With the Consumer Electronics Show kicking off Thursday adorned by all those bright, shiny gadgets, Intel effectively said: gadgets maybe, but not so bright and shiny.

And for an Intel warning, this one was particularly dire. The biggest chip bellwether said it now expects only $8.2 billion in revenue for the quarter, a 23 percent drop from the year-earlier period, and 20 percent from the third quarter. And this comes after issuing a warning on November 12.

So what's happening? The clearest example of the gloom that has descended on the chip industry, and by extension computer and gadget makers, came relatively early from another chip bellwether, Taiwan Semiconductor Manufacturing Company -- the largest chip contract manufacturer, which supplies chips to all the first-tier electronics and computer makers. Back on October 30, TSMC issued a forecast that set the tone for the rest of the industry: CEO Rick Tsai said the supply chain -- the myriad of companies that order chips from TSMC -- was "reducing inventory very aggressively."

That supply chain, either directly or indirectly, is the computer and gadget makers of the world.

So going into CES, the picture is not pretty. "We just heard consumer electronics sales over the holidays were down 26 percent year to year," said Broadpoint AmTech analyst Doug Freedman. "You want to head into CES with a pall over it? There it is, right there."

And go the other way, up the supply chain -- the chip gear makers who supply production equipment to chip companies -- and things are even more bleak, with some gear makers saying they don't expect any orders at all in 2009 for certain categories of equipment. In December, Netherlands-based ASML CEO Eric Meurice said that "never before have we witnessed such a sharp and sudden fall-off in lithography system demand."

Other examples are almost too numerous to list: for starters, Toshiba and SanDisk slashing flash memory output 30 percent, Taiwan's memory chip industry on the verge of collapse, and Micron Technology posting a massive $706 million loss.

Yes, there's probably a silver lining in all of this, in that chipmakers and gadget suppliers have to cut the fat and become lean and mean, but where does it end?

And how will this downturn transform the computer industry? Looking at it through the prism of Netbooks -- which are expected to catch much of the limelight at CES -- may provide some insight. These cheap laptop computers are on fire, partially because they are compelling designs but mostly because of price. Good thing? Yeah, great for consumers and small businesses that are finally realizing they don't have to pay $2,000 for a small, lightweight ultraportable notebook. Or simply can't afford a $1,000 notebook.

But not so great for Intel, Apple, and others. "What is the most expensive laptop out there? The Apple (MacBook) Air," said Freedman. "That's a $1,500 or $2,000 machine. Now all of a sudden I'm giving you ultraportability for $500," he said, referring to the price of a Netbook.

In this sense, over-priced notebooks could be seen as roughly equivalent to large SUVs -- overkill. Just as General Motors must wean itself off lumbering SUVs, so may Intel, Hewlett-Packard, Sony, Toshiba, et al., be forced, to some extent, to wean themselves off high-profit notebook computers. After all, what took Sony so long to bring out a Netbook? And why don't we see an Apple Netbook? It's not a stretch to say that those companies don't like the idea of selling a lot of inexpensive computers.

At CES, companies will be hawking flashy gadgets, as always, and maybe attendees can suspend disbelief for a few days blinded by the glare of the gadgets. But that's really just lipstick on a pig.

[Get_a_life_Leo]

Actually, the most expensive laptop out there is the just announced 17" MacBook Pro which, if configured with an 256 Gb SSD and 8 Gb of RAM from Apple runs almost $5000. But netbooks are also severely limited. The MacBook Air is significantly faster and has a far better screen than most netbooks. Will Apple make a netbook? Probably should, but probably not (use an iPod Touch - sure.....).

The analogy to SUVs is also disingenuous since those monsters were designed to get around taxes and safety standards when oil was cheap. They are dying because people have realised they don't need an almost off-road capable vehicle that guzzles gas. The true dinosaur is the desktop computer - as judged by the overtaking of laptops in numbers (admittedly also compounded by netbooks). People now realise they don't need a desktop for most tasks (aside high-end gaming) as a laptop offers similar power and performance.

[coolpaule]

Laptop for personal and desktop for small business. I really don't want to mix the two!

[i_made_this]

IMHO Freedman's comments are unbelievably myopic, not to mention plain stupid.

"We just heard consumer electronics sales over the holidays were down 26 percent year to year," said Broadpoint AmTech analyst Doug Freedman. "You want to head into CES with a pall over it? There it is, right there."

Doug, tell me and the rest of C|NET's readership exactly why we should care.

I love technology, have been involved in it since the mid-1970's, but still, I sincerely don't give a damn about CE sales being down 26% YOY, and I sure as shootin' couldn't care less what the mood amongst attendees of the 2009 CES was like.

I do respect Intel for its corporate ethics in announcing this particular shortfall at this particular CES. It was their goal by doing it at CES to give the usually party-like mood at CES a swift kick in the butt and a wake-up call. As I see it, it was Intel's way of saying (my words lol...) "the modern tech industry as we've come to know it has never in its 20+ year history had to operate in such a economically dismal environment as this. Be glad to sell anything at all for the duration, which won't be short."

I'm glad their statement opened eyes at the CES. I'm certain it was meant to do. One thing I can remain certain of - if there is any tech industry at all in decades coming, Intel will remain a major player - arguably "the" major player.

[Bernardo Ortiz]

This is significant because during previous recessions in the electronics industry PC sales defied logic by continuing to grow at the same steady pace. The comment is not myopic but I do agree, the decline is likely due more to how awful the entire economy is as opposed to netbook versus laptop battle.

On the other hand, i7 has been widely pre-announced and hardly anyone is carrying it. USB3 has been announced, yet it's about a year away from shipping. Is it just a case of all this wonderful technology that is "coming soon" but still not shipping that is stealing all the sales?