July 7, 2006 1:43 PM PDT

PC pricing, demand take hit in second quarter

It's not that the PC market hates spring. But nothing good ever seems to come of that quarter.

The traditional second-quarter bad news hit Advanced Micro Devices this week. The company reported late Thursday that revenue would fall short of its previous expectations, based on lower shipments of desktop and notebook processors for low-end and mainstream systems.

That the second quarter was a disappointment should not be a major surprise. PC and chip vendors have learned to expect little from April to June. Devoid of any major purchasing boost like the holiday season or the rush back to school, the second quarter is almost always the low point of the year. In a normal year, processor shipments fall about 2 percent to 4 percent in the second quarter compared with the first, according to Mercury Research.

But AMD's second-quarter revenue is now expected to be down 9 percent compared with the first quarter, failing to meet earlier expectations that revenue would be flat or slightly down. Analysts say poor demand, tough pricing pressure from chip giant Intel and weakness in desktop pricing all played a role in the disappointing quarter.

"The big question on everyone's mind today will be whether AMD's Q2 revenue miss resulted from market share loss to Intel, a weak environment overall or some combination of both. For our part we think that most of AMD's problems stem from lousy second-quarter demand," Merrill Lynch's Joe Osha wrote in a research report distributed Friday.

AMD is also dealing with severe pricing competition from Intel. Intel has looked to clear its decks of older processors during the second quarter to make way for the Core architecture chips coming this month and in August. The company has also been much more willing than usual to discuss future cuts, which has the effect of pushing demand from the second quarter into the third, Osha wrote.

"There's no question that the environment has gotten a lot more competitive with Intel lowering prices, and Dell has gotten very aggressive with pricing," said Richard Shim, an analyst with IDC.

In the retail PC market, demand hasn't fallen off the face of the earth, but the sales gains retailers are seeing are due in part to market share gains at the expense of direct sellers, said Stephen Baker, an analyst with NPD Techworld. Dell, of course, dominates the direct market, but AMD and Dell have yet to release a PC together, while retail PC companies like Hewlett-Packard, Gateway and Acer have embraced AMD.

The notebook edge
Demand has waned for desktop PCs, along with prices, Baker said. While AMD has become an industry darling for its strong market share gains in the server and desktop markets, Intel has held AMD off in the notebook market to a large extent.

AMD's technical advantage in other parts of the market has not held up in the notebook realm, where Intel has enjoyed a performance edge and courted customers with its popular Centrino marketing strategy. This isn't expected to change until next year when AMD rolls out a new chip designed specifically for notebooks.

Notebook shipments continue to grow much faster than those for desktops, and notebooks also hold their prices longer than desktops, Baker said. For example, at the beginning of the year the average price of a desktop PC with AMD's Athlon 64 processor was $608, according to NPD Techworld research. But by May, that average price had fallen to $526, a sharper decline than seen in PCs with AMD's dual-core Athlon 64 X2 processors or Intel's Pentium D processors.

AMD's problem in the PC market is that it doesn't have the same leverage over the vendors that Intel has, Baker said. "They get pushed into those positions where they want to maintain their share, but they can't maintain the pricing in the way that benefits them the most." AMD would like to use its Sempron processor in more low-end configurations, but vendors prefer to use the more powerful single-core Athlon 64 chip, and AMD winds up slotting that chip into price bands it would have preferred to avoid, he said.

Whether or not the overall market is in the tank, PC vendors will clearly be glad to put the second quarter behind them. Intel will launch two new chips for desktops and notebooks in July and August, respectively, that should help boost demand in the second half of the year, Osha wrote. Vendors will also start to order more chips to prepare for the back-to-school and holiday seasons, helping AMD get back on its feet as well.

AMD's stock was down 51 cents, or 2.14 percent, to $23.32 in Friday afternoon trading on the New York Stock Exchange. Intel's stock was also down a little--15 cents--to trade at $18.70 on the Nasdaq.

See more CNET content tagged:
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20 comments

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Just build it
Why spend tons of money on machines that use low quality parts because they're built in bulk. Just buy the parts and build a better box.
<a class="jive-link-external" href="http://www.techknowcafe.com/content/view/551/43/" target="_newWindow">http://www.techknowcafe.com/content/view/551/43/</a>
Posted by (156 comments )
Reply Link Flag
Cheap PC's ....
...... are at the core of the problem. Once PC manufacturers
went for the bottom line and forgot about quality, the PS was a
junk product. MS could get away with a junk OS. And publishers
could get away with junk apps.

No one had any respect for quality - but why should they|? Most
users judged only by price, and the cheaper PC models won.
Actually, it was generally a correct decision, most PC users were
general incompetent on the computer and ran only simple
programs and MS's embedded 'apps'. And for those, the cheap
PC was generally adequate.

My PSC's are stuck with Windows XP - bad as it is, it's all that is
really available. And my main PC run a 3 GHZ Pentium 4 and
uses 768 MB of RAM - I need some quality in that unit. The rest
are 500 MHZ Celerons with 384 MB of RAM (compaq 5600
series). And I have a fairly full range of apps to operate my
company's business.

For serious computing, however, All the PC's lose out to my
array of Mac's (OS9 thru OS 10.4.7, 350 to dual 1250 MHZ
speed, 1.25 to 2.0 GB of RAM, and Mac versions of most of the
useful PC apps). XP can't compare to OS 10.4.7, the Mac apps
have all the features the PC apps lost, overall operation is far
more professional, I'm not constantly bombarded with error
corrections labelled updates, and I don't fight the generally
useless embedded software MS uses to kill independent
publishers.

So I agree with saving your money as long as the PC
manufacturers continue to try to 'out-cheap' each other, And
were I to get a new PC, I might just build it myself where I know
the quality and full capabilities of the parts being used. And I
could avoid the tendency of the PC to use cheap screw
approaches like USB 2 rather than FireWire. But then, I would
have to consider using Vista. And at best, I am five years away
from that move. MS needs the time to revamp an essentially
early Beta design into something approaching useful. And even
then, I'm not sure I see anything tjat might be a useful
improvement.

But then, as no end of other writers will clearly explain to you, I
am not a fan of the PC or MS. In addition, I don't drive Fords or
Chevies. I don't like beer or professional 'wrestling'. Most
networks TV shows don't even qualify as junk. And Kerry was a
waste of time (Bush wasn't a whole lot better). So don't waste
your time telling me I walk to a different drummer. I know I do. I
just hate being around lemmings.
Posted by Earl Benser (4310 comments )
Link Flag
Are you sure....
From the low to mid-range I don't believe this is the case. I just purchased a refurbished Dell Optiplex GX620, with a 670 P4 CPU, 2GB of RAM 160GB, Dual layer DVD write, MS XP Pro etc with a 3 year warranty for ~$1200 shipped to my door. The CPU and XP Pro license alone would cost me &gt;$800 at newegg. There is no way I could have bought the rest of the stuff (PSU, motherboard, HD, memory, etc) and had it shipped to my door for less than $400, unless I bought at the very low end. I built my own computer two years ago, so I know how to do it. When comparing prices you can only compete with with the OEM's at the very high end stuff. I have done more than a half a dozen comparisons in the last 18 months, and the OEM were always at least 5-10% under what I could buy the parts for myself. Don't believe me, check out any HP, Dell, Lenovo low to midrange system and select the same parts at your favorite etailer. At $1500 or less price point, the OEM's will always win.

As for Dell quality, I know I have read all the horror stories on the web to. But my 5 year old Dell Dimension 8100 is still going strong. Added more memory and a dual layer DVD writer. I will get a good couple more years out of it as a desktop (just for web browsing) until I turn it into a RAID server in the basement.
Posted by sdsdv10 (12 comments )
Link Flag
Just build it
Why spend tons of money on machines that use low quality parts because they're built in bulk. Just buy the parts and build a better box.
<a class="jive-link-external" href="http://www.techknowcafe.com/content/view/551/43/" target="_newWindow">http://www.techknowcafe.com/content/view/551/43/</a>
Posted by (156 comments )
Reply Link Flag
Cheap PC's ....
...... are at the core of the problem. Once PC manufacturers
went for the bottom line and forgot about quality, the PS was a
junk product. MS could get away with a junk OS. And publishers
could get away with junk apps.

No one had any respect for quality - but why should they|? Most
users judged only by price, and the cheaper PC models won.
Actually, it was generally a correct decision, most PC users were
general incompetent on the computer and ran only simple
programs and MS's embedded 'apps'. And for those, the cheap
PC was generally adequate.

My PSC's are stuck with Windows XP - bad as it is, it's all that is
really available. And my main PC run a 3 GHZ Pentium 4 and
uses 768 MB of RAM - I need some quality in that unit. The rest
are 500 MHZ Celerons with 384 MB of RAM (compaq 5600
series). And I have a fairly full range of apps to operate my
company's business.

For serious computing, however, All the PC's lose out to my
array of Mac's (OS9 thru OS 10.4.7, 350 to dual 1250 MHZ
speed, 1.25 to 2.0 GB of RAM, and Mac versions of most of the
useful PC apps). XP can't compare to OS 10.4.7, the Mac apps
have all the features the PC apps lost, overall operation is far
more professional, I'm not constantly bombarded with error
corrections labelled updates, and I don't fight the generally
useless embedded software MS uses to kill independent
publishers.

So I agree with saving your money as long as the PC
manufacturers continue to try to 'out-cheap' each other, And
were I to get a new PC, I might just build it myself where I know
the quality and full capabilities of the parts being used. And I
could avoid the tendency of the PC to use cheap screw
approaches like USB 2 rather than FireWire. But then, I would
have to consider using Vista. And at best, I am five years away
from that move. MS needs the time to revamp an essentially
early Beta design into something approaching useful. And even
then, I'm not sure I see anything tjat might be a useful
improvement.

But then, as no end of other writers will clearly explain to you, I
am not a fan of the PC or MS. In addition, I don't drive Fords or
Chevies. I don't like beer or professional 'wrestling'. Most
networks TV shows don't even qualify as junk. And Kerry was a
waste of time (Bush wasn't a whole lot better). So don't waste
your time telling me I walk to a different drummer. I know I do. I
just hate being around lemmings.
Posted by Earl Benser (4310 comments )
Link Flag
Are you sure....
From the low to mid-range I don't believe this is the case. I just purchased a refurbished Dell Optiplex GX620, with a 670 P4 CPU, 2GB of RAM 160GB, Dual layer DVD write, MS XP Pro etc with a 3 year warranty for ~$1200 shipped to my door. The CPU and XP Pro license alone would cost me &gt;$800 at newegg. There is no way I could have bought the rest of the stuff (PSU, motherboard, HD, memory, etc) and had it shipped to my door for less than $400, unless I bought at the very low end. I built my own computer two years ago, so I know how to do it. When comparing prices you can only compete with with the OEM's at the very high end stuff. I have done more than a half a dozen comparisons in the last 18 months, and the OEM were always at least 5-10% under what I could buy the parts for myself. Don't believe me, check out any HP, Dell, Lenovo low to midrange system and select the same parts at your favorite etailer. At $1500 or less price point, the OEM's will always win.

As for Dell quality, I know I have read all the horror stories on the web to. But my 5 year old Dell Dimension 8100 is still going strong. Added more memory and a dual layer DVD writer. I will get a good couple more years out of it as a desktop (just for web browsing) until I turn it into a RAID server in the basement.
Posted by sdsdv10 (12 comments )
Link Flag
Ah, you made my point...
All from Newegg, a major supplier of OEM parts.

Complete desktop computer from Acer;
newegg_dot_com/Product/Product.asp?Item=N82E16883103017
included motherboard, 2GB RAM, Intel 940 dual core CPU (there wasn't any AMD X2 models listed), 200GB hard drive (7200rpm SATA), power supply (although at only 300W, however it does comes with 3 year factory warranty), keyboard, mouse, case, XP Pro, a dual layer DVD burner and the mentioned 3 year warranty for $940 (plus $27 shipping). It uses integrated graphics, but does have a 16xPCIe slot. A XFX 6800GS PCIe card is $195 (plus $7 shipping). So, for a grand total of $1169 (including shipping) you can get a similar system to the one you mentioned for ~$1300 (Eliminating the extra hard drives, also as you mentioned. As these would add the same cost to either system). So, for about $140 less than you

If you really like to build your own systems, that is great. But people should really stop using cost as the main reason. OEMs can build the same or similar system that a person builds at home for essentially the same or less cost. There are other reasons to build you own, but price really isnt one of them anymore.

So, I stand by my statement. With a little searching and effort, below the $1500 price point you can get a very nice OEM system that will meet or beat a home built system.

Regarding purchasing OEM parts, beside optical drives, hard drives and operating systems, what can you by OEM. Sure you can get OEM CPUs, but then you have to get a separate HSF and they are often more expensive OEM than retail box (check out newegg Opteron prices). Motherboards, I dont think so. You need the I/O plate and cables anyway. Cases dont come OEM (from the big name companies, like Antec or Lian-Li), neither do power supplies (again from the major suppliers). For memory, I found a $6 difference on Crucial 1GB DDR2 667modules (OEM $124, Retail $130), not really 50%, closer to 5%.

Let me restate, I am not against building computers myself (I built my own PC two years ago). But it shouldnt be stated that cost is the major factor for the decision, because this is simply not the case. If you like to just know how to do it, to lessen you anxiety on working/fixing them, enjoy it as hobby, do it for a job are all good reasons to build your own, saving money isnt because you wont really save all that much.
Posted by sdsdv10 (12 comments )
Reply Link Flag
Sorry, wrong place
This was ment as a reply to Bob Smith. Stupid me, clicked the wrong link.
Posted by sdsdv10 (12 comments )
Link Flag
Ah, you made my point...
All from Newegg, a major supplier of OEM parts.

Complete desktop computer from Acer;
newegg_dot_com/Product/Product.asp?Item=N82E16883103017
included motherboard, 2GB RAM, Intel 940 dual core CPU (there wasn't any AMD X2 models listed), 200GB hard drive (7200rpm SATA), power supply (although at only 300W, however it does comes with 3 year factory warranty), keyboard, mouse, case, XP Pro, a dual layer DVD burner and the mentioned 3 year warranty for $940 (plus $27 shipping). It uses integrated graphics, but does have a 16xPCIe slot. A XFX 6800GS PCIe card is $195 (plus $7 shipping). So, for a grand total of $1169 (including shipping) you can get a similar system to the one you mentioned for ~$1300 (Eliminating the extra hard drives, also as you mentioned. As these would add the same cost to either system). So, for about $140 less than you

If you really like to build your own systems, that is great. But people should really stop using cost as the main reason. OEMs can build the same or similar system that a person builds at home for essentially the same or less cost. There are other reasons to build you own, but price really isnt one of them anymore.

So, I stand by my statement. With a little searching and effort, below the $1500 price point you can get a very nice OEM system that will meet or beat a home built system.

Regarding purchasing OEM parts, beside optical drives, hard drives and operating systems, what can you by OEM. Sure you can get OEM CPUs, but then you have to get a separate HSF and they are often more expensive OEM than retail box (check out newegg Opteron prices). Motherboards, I dont think so. You need the I/O plate and cables anyway. Cases dont come OEM (from the big name companies, like Antec or Lian-Li), neither do power supplies (again from the major suppliers). For memory, I found a $6 difference on Crucial 1GB DDR2 667modules (OEM $124, Retail $130), not really 50%, closer to 5%.

Let me restate, I am not against building computers myself (I built my own PC two years ago). But it shouldnt be stated that cost is the major factor for the decision, because this is simply not the case. If you like to just know how to do it, to lessen you anxiety on working/fixing them, enjoy it as hobby, do it for a job are all good reasons to build your own, saving money isnt because you wont really save all that much.
Posted by sdsdv10 (12 comments )
Reply Link Flag
Sorry, wrong place
This was ment as a reply to Bob Smith. Stupid me, clicked the wrong link.
Posted by sdsdv10 (12 comments )
Link Flag
Fourth Quarter Demand
Fourth quarter demand should be interesting:

Some people may hold off their purchase, so they can get Vista preinstalled.

Some people may rush to purchase a WinXP machine, to avoid Vista preinstalled.
Posted by john55440 (1020 comments )
Reply Link Flag
Fourth Quarter Demand
Fourth quarter demand should be interesting:

Some people may hold off their purchase, so they can get Vista preinstalled.

Some people may rush to purchase a WinXP machine, to avoid Vista preinstalled.
Posted by john55440 (1020 comments )
Reply Link Flag
 

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