Buoyed by Netbook sales, shipments of Intel graphics chips surged and Advanced Micro Devices gained on Nvidia in the third quarter.
Third-quarter shipments of graphics processors jumped 21.2 percent over the second quarter, according to market researcher Jon Peddie Research. Graphics chips drive the images produced on PC users' screens.
A total of 119.45 million units were shipped in the third quarter, exceeding the record 111 million units that shipped in the third quarter of 2008, according to Jon Peddie, president of Jon Peddie Research. "So the market has caught up with, and exceeded, last year's highs. The crash of fall 2008 is now behind us," he said in a statement.
The third quarter exceeded a robust second quarter. "Q2 was already a great quarter clearly signaling the holidays will be robust for PCs and the industry in general," Peddie said.
AMD gained on discrete graphics chip leader Nvidia in quarter-to-quarter growth.
(Credit: Jon Peddie Research)AMD showed the biggest jump in quarter-to-quarter growth at 30 percent, followed by Intel at 21 percent. But Intel dominates raw shipments. "Intel shipped the most parts at 63 million, over twice as many as its nearest competitor Nvidia," according to Peddie, who said Intel had a 53 percent share of the market in the third quarter. Nvidia was second with 24.9 percent, followed by AMD with 19.8 percent.
Surging Netbook shipments are behind the big Intel numbers. Integrated graphics in notebooks, which includes Netbooks, increased 27 percent over the second quarter. Integrated graphics are built into supporting Intel silicon called chipsets.
"Netbooks will remain popular but they will not have the high market share they had during the recession when they were just introduced. Rather, consumers are expected to 'buy up' in the next quarter," according to Peddie.
Fourth-quarter shipments may not be as strong as the third quarter, however. "The channel is full...That suggests that while Q4 is typically a good quarter for PCs, the quarter-to-quarter growth in Q4 may not be as robust as Q3. Graphics are a great leading indicator. The graphics go in before the PC is built or shipped," Peddie said.
Updated at 12:20 p.m. PST with additional information about salary cuts.
Nvidia is buying up underwater stock options from employees and cutting salaries across the company amid a steep revenue falloff.
On Tuesday, the graphics chip supplier posted a fourth-quarter loss of just under $148 million and a 60 percent drop in revenue as demand for its graphics chips dried up.
"November fell off a cliff," said CEO Jen-Hsun Huang, addressing the decrease in demand, during an earnings conference call Tuesday. Chief Financial Officer Marvin Burkett added that "December was worse."
In the aftermath of its earnings report, Nvidia's stock fell over $1, or more than 12 percent, on Wednesday. Shares closed at $8.15 on Wednesday.
In response to an extended decline in its stock price, Nvidia said this week it will take up to a $150 million charge in the first quarter to buy underwater stock options from employees, not including board directors and certain executive officers. The offer commenced Wednesday and will expire on March 11.
"As of January 25, 2009, there were approximately 33 million eligible options. If all these options are tendered and accepted in the offer, the aggregate cash purchase price for these options would be approximately $92 million," Nvidia said in a statement.
Nvidia is also instituting company-wide salary cuts. "The executives of our company took the largest and most significant cutbacks," said Huang in the earnings conference call on Tuesday. But he added that it affects "almost all of our employees," is "broadbased and it's everywhere."
On Thursday, senior vice president Dan Vivoli, in a phone interview, said that executives "don't get any of their variable this year" which, in some cases, is a large part of their pay. There will be a broader pay cut too. "We decided to do a five percent across-the-board pay cut," Vivoli added.
Analysts don't expect much improvement in the coming quarters. "Growth catalysts include Tegra (ships 2H09), Telsa (ramping) and Ion (shipping), though we do not expect these to meaningfully contribute to revenue and gross margin upside for several quarters out," said Doug Freedman of Broadpoint.AmTech in a research note.
In September Nvidia said it was cutting its workforce 6.5 percent.
Correction, 2:44 p.m. PST: This story initially misstated the day Nvidia slashed its revenue guidance by up to 50 percent. It was January 13.
Nvidia posted a fourth-quarter loss of just under $148 million and a 60 percent drop in revenue as demand plummeted.
On Tuesday, the largest graphics chip supplier reported a loss of $147.7 million, or 27 cents a share, compared with a profit of $257 million, or 42 cents a share, in the year-earlier period.
The Santa Clara, Calif.-based company posted revenue of $481.1 million, down 60 percent from the $1.2 billion reported for the fourth quarter a year ago.
Excluding special items, the loss would have been $94.4 million, or 18 cents a share. Analysts had expected a loss of 12 cents a share on $587 million revenue.
Shares of Nvidia fell more than 7 percent in after-hours trading.
"November fell off a cliff," said CEO Jen-Hsun Huang, addressing the decrease in demand, during an earnings conference call Tuesday. Chief financial officer Marvin Burkett added that December was worse.
Nvidia had slashed revenue guidance by up to 50 percent back on January 13.
Most of the major PC chip suppliers, including Taiwan Semiconductor Manufacturing Co. (TSMC), have cited a dramatic fall-off in orders from customers. TSMC has said it expects the chip industry to decline by mid to high single digits in 2009, "with very little visibility."
iSuppli, which tracks the PC market, said in its Q4 2008 Market Tracker that shipments of desktop PCs--where most of the high-end, high-profit-margin graphics chips go--are forecast to decline by 6.4 percent in the quarter on a year-over-year basis. And iSuppli expects the desktop PC market to get worse in 2009, with desktop PC shipments falling 5.5 percent to 146.2 million units.
Advanced Micro Devices on Monday announced that the U.S. Department of Justice has closed its nearly two-year antitrust investigation into ATI Technologies, a graphics chip company it acquired shortly before the investigation began.
The Justice Department has decided not to take action against the company regarding ATI's pricing and marketing practices.
In December 2006, antitrust regulators began to investigate ATI and Nvidia, the two largest add-in graphics technology players, for possible antitrust violations within the graphics processing unit and cards industry. AMD acquired ATI for $5.4 billion in October 2006, and within weeks of that merger closing, Nvidia debuted its GeForce 8800 graphics card.
At the time, one industry analyst noted that because ATI and Nvidia were the two main players in the graphics chip market, the pricing was often similar for products of theirs offering comparable performance.
Nvidia confirmed that on Friday the DOJ notified the graphics chipmaker that it had closed the investigation and no action was taken.
Advanced Micro Devices announced Friday that it would take a total of $948 million in charges in the second quarter, sending its stock down as much as 7 percent in early morning trading.
Shares of the chipmaker fell as low as $4.60 a share in early trading, or down approximately 7 percent. AMD was trading at $4.82, down 2.8 percent, later in the morning.
AMD noted the bulk of its charges will come from a continuing deterioration in the goodwill value of its former ATI handheld and DTV units, which are part of AMD's Consumer Electronics Group. Write-downs for the intangible value, or goodwill, of those units are approximately $880 million.
It's not the first time AMD has had to take a large write-down charge because of the deteriorating goodwill value of its ATI acquisition.
Last year, AMD took a whopping $1.6 billion write-down for ATI's declining goodwill, which is the intangible value assigned above a company's actual assets at the time of a purchase. AMD paid $5.4 billion for ATI in 2006, $3.2 billion of which was composed of goodwill.
In addition to the ATI and DTV charges, the chipmaker noted it will take a $32 million restructuring charge, which largely came from severance payments paid in the second quarter and will continue through the rest of the year.
The company will also take charges for declining value in some of its investments that appear to be less than temporary. An approximate $24 million charge relating to AMD's Spansion stock and a $12 million charge resulting from its auction rate securities holdings will be taken in the second quarter.
AMD expects to report its second-quarter financial results Thursday, after the market closes.
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