March 3, 2006 1:20 PM PST

Strike three for Intel

The giant is taking a nap.

Intel warned on Friday that its revenue for the first quarter would come in at between $8.7 billion and $9.1 billion, roughly $500 million lower than estimates the company issued in January. The Santa Clara, Calif.-based chipmaker cited a weak market and a "slight" market share loss.

Analysts generally agree about the market, but are putting more emphasis on the loss of share. Some have pointed to the momentum shown by Advanced Micro Devices, which has been far more aggressive over the past 18 months. The rival chipmaker has been strengthening its ties to PC makers, most prominently with Hewlett-Packard, and keeping prices low.

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What's new:
Intel said first-quarter revenue will fall short of expectations, which will make the second straight quarter it has had bad news to report.

Bottom line:
AMD's market share gains are continuing as Intel navigates a painful transition period between its older chip designs and newer models expected by the end of this year.

More stories on this topic

"They have been very aggressive about getting share and getting shelf space. We haven't seen a lot from Intel," NPD Techworld analyst Steve Baker said.

AMD's surge can be seen most strongly in the U.S. retail market, which accounts for about 9 percent of global PC shipments. In the first seven weeks of 2006, AMD's share in desktops in that area climbed to 81.5 percent, while Intel's has slid to 18.5 percent, Baker said. That's almost a complete reversal of their typical relative positions.

In notebooks, Intel's share has declined to 63 percent, even though Baker and others generally agree that Intel enjoys a technological advantage in laptops.

The retail PC market itself is holding steady, Baker noted. "Overall volume is OK through the first six to eight weeks of the year. We're still growing in double digits in notebooks and single digits in desktops," he said.

Price plays a key factor. In recent weeks, the average AMD desktop sold in American outlets for $578, Baker said. The average Intel desktop cost $780. In notebooks with Intel chips, the average price was $957, lower than AMD's $1,016.

Other analysts, however, said that not all of Intel's woes can be laid at AMD's feet. For instance, PC sales typically slow by between 5 percent and 10 percent from the fourth quarter to the first. And for the past six years, Intel has seen revenue decline in that period by 7.2 percent, according to its financial statements.

The company reported revenue of $10.2 billion in the fourth quarter. With its updated outlook for this quarter of $8.7 billion to $9.1 billion, Intel is looking at a decline of 14.7 percent to 10.7 percent. Thus, seasonal decline could account for about half or more of the slide.

Price cuts are also a reality. This year, shipments of PCs will grow by 9.3 percent, or even a little more compared with 2005, Gartner analyst Miko Kitagawa has estimated. By contrast, overall revenue will decline by 0.3 percent, she said. That means units sell for a lower price than before. The trend looks likely to continue into 2007, when shipments will increase 7.6 percent, but revenue will rise only 0.6 percent, she said.

Server chip sales
Although server processors represent a small portion of Intel's shipments, the company makes more money on the sale of a server chip than on other processors. The company's struggles to get its Itanium server processor off the ground have been well documented, but Intel is also having competitive problems in this market.

The Opteron chip has lifted AMD's share of the x86 server processor market from virtually zero a few years ago to 14.3 percent in the fourth quarter of 2005, according to IDC. Several high-end customers have installed Opteron servers, and the latest is Google, according to Mark Edelstone at Morgan Stanley. Almost all of that came at Intel's expense.

"Intel has never really had to deal with a competitor in the x86 space that had its act together," said Nathan Brookwood, principal analyst at Insight 64. "But how much of the problem is due to AMD's competitiveness, and how much is due to internal factors like chipsets and inventories?"

Intel has struggled to manage capacity over the last few years, as it has switched to new manufacturing technology. For example, stronger-than-expected demand for PCs last year forced it to stop making chipsets for low-end desktop processors, so it could concentrate on fulfilling all of its processor commitments. That left the door open for AMD to nab market share in desktop PCs. Desktop sales are only growing slowly worldwide, but still represent a large segment of Intel's revenue.

Intel clearly has its eye on the future. The company is in a better position against AMD in the notebook market, and shipments of these are soon expected to overtake desktops. As for servers and desktops, it's pinning its hopes on a new chip blueprint. Next week, at the Intel Developer Forum, the company plans to walk hardware developers through the intricacies of its next-generation microarchitecture (NGMA), which is slated to replace the hurting Netburst architecture in the Pentium 4 and Xeon chips.

Desktop and notebook chips based on NGMA should deliver a 20 percent performance improvement over comparable processors from AMD in the second half of this year, Mooly Eden, general manager of Intel's Mobile Platforms Group, said in a recent interview. AMD disputes this, but it's clear that Intel will be in much better competitive shape with its Conroe desktop chip and its Merom notebook chip, Brookwood said.

Before Intel gets to Conroe and Merom, however, it will have to endure a transition period that looks likely to be difficult, said Kevin Krewell, editor in chief of The Microprocessor Report. Concerns that the company will have to cut inventories to make room for the new chips prompted Merrill Lynch analyst Joe Osha to lower his targets for Intel's 2006 earnings per share on Thursday, even before Intel issued its warning.

It looks like the storm could pass this year for Intel, Brookwood said. Investors punished Intel's stock early on Friday, but the stock closed down only 17 cents at $20.32 on the Nasdaq.

"They clearly are at the tail end of what has been a pretty painful period for Intel," Brookwood said. "They had to tear up their road map and scramble to find new products to drop into the places where the old products were going to appear."

See more CNET content tagged:
Steve Baker, shipment, AMD, Intel, AMD Opteron

9 comments

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Dont count Intel out
Intel didn't get to be such the dominant force they are today just by chance. They are excellent strategists and until recently, executed nearly flawlessly. AMD alone isn't the only reason Intel is losing market share, or revenues. Intel is preparing to launch the new processors that will help them better compete with AMD in terms of performance, and wattage (both of which are AMD's largest advantages). Plus, with the launch of Viiv, Intel has a great way to expand in more areas than one (think Intel's overpriced chipsets) and with Core Duo powering the newest laptops & portables, Intel is sure to gain more traction there (if only a matter of time). And the big mystery- Origami. If that catches on as well as Microsoft hopes, Intel will be the premier choice for those kinds of devices.

I am a firm supporter of AMD, but let's face it, Intel may be a little down now. But they are always cooking up something new in their labs- just takes a little time to roll out, implement, and rake in the dough. And when that happens, AMD may have to watch their back.
Posted by naterandrews (256 comments )
Reply Link Flag
I Agree
I am a firm supporter of AMD technology. But knowone should under-estimate the power and marketing prowess that Intel has had.

Tread lightly AMD.
Posted by SystemsJunky (409 comments )
Link Flag
Intel is a CHANGIN'
Intel could be thought as the sleeping giant, and they are already on the move with thier new ploy, why else change their logo. They most definately have something cooking in the pot.
Posted by bobj123 (94 comments )
Link Flag
INTEL will suffer losses in 2006
mass layoffs in 2007

<a class="jive-link-external" href="http://sharikou.blogspot.com/2006/03/amd-readies-more-frags-for-intel.html" target="_newWindow">http://sharikou.blogspot.com/2006/03/amd-readies-more-frags-for-intel.html</a>
Posted by sharikou (106 comments )
Reply Link Flag
Interesting link...
But that blogger must be smokin' crack.
He makes no sense.
Posted by deepsubmicron (3 comments )
Link Flag
LEt the dirty tactics begin
That's what we've come to expect from Intel. The next major upgrade we're doing at my company (4000+ Pc's) we're going AMD all the way. We won't even bother with a quote from Intel.
Posted by City_Of_LA (118 comments )
Reply Link Flag
Agreed, don't count Intel out...but don't bet on AMD being defenseless...
I don't anticipate that a company as (typically) successful as Intel is going to continue to flounder much longer, however, as everyone continues to state "Intel has NEVER had true competition in the x86 processor space.." and that is a MAJOR adjustment for them!

Bye the same token, I find it funny that everyone assumes that AMD is just sitting back and waiting on the IDF for Intel to launch products that steal any thunder they have had for the last two years. I don't see it....

Reality may have finally set in at Intel, they are having to rely on engineering to get back in the game, the marketing $ just aren't cutting it anymore. That makes for some serious adjustments!

I don't see us losing as customers, regardless of what happens, but I don't see AMD standing still and waiting on a sucker-punch from Intel and then crying back home to TX with their tail between their legs!

One last point...am I the only one that thinks the new intel logo is HORRIBLE! I would have someone in the marketing dept. for breakfast! UGH!

Just my 2c!
Posted by dontBhatin (5 comments )
Reply Link Flag
silent running
amen
Posted by kingslayer2 (1 comment )
Link Flag
Intel Still has Major Advantages
Intel has the best process and production people
in the business, which means that they have the
lowest cost of production. It also means that
they have the highest margins.

AMD has established a temporary advantage with a
viable 64-bit instruction set and integrated
memory management, but purely technical advantages
will not be good enough for AMD to take over the
market. So far, only gamers and specialized
high-end servers have an actual preference for
AMD. All of the other customers buy AMD because
it costs less.

So, Intel (who still have over 75% market share)
has two effective options if they decide that
getting back market share is a priority:

1. They can drop their prices. This will hurt
AMD a lot more than it will hurt Intel.

2. They can copy AMD's 64-bit instruction set, etc.
The chip design guys _hate_ this option, but it
is allowed under the AMD-Intel second-source
agreement.
Posted by (139 comments )
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