Business Tech

Third-quarter sales of servers across the globe showed a 17.3 percent decline from the same quarter in 2008, sagging to $10.4 billion, according to IDC's Worldwide Quarterly Server Tracker.

But server shipments improved, falling only 17.9 percent for the quarter, compared with 30.1 percent in the second quarter, noted the IDC report released Wednesday. Even more promising, shipments grew at a healthy 12.4 percent over the second quarter, the market's largest sequential quarterly gain since 2005.

All three server segments tracked by IDC--volume, midrange enterprise, and high-end enterprise--saw lower third-quarter sales compared with the same quarter last year. Revenue for midrange enterprise servers fell 23.4 percent, while sales of high-end enterprise servers dropped 19.3 percent.

But revenue for volume servers, the lower end of the market, improved over the second quarter and experienced their lowest drop since the third quarter of 2008.

"The worldwide server market exceeded expectations in the third quarter with improving x86 server demand leading the way, which was driven in part by the infrastructure refresh momentum that is building in many geographies," said Matt Eastwood, IDC's group vice president of Enterprise Platforms, in a statement. "In fact, x86 server revenues experienced their largest sequential quarterly revenue increase in nearly five years."

(Credit: IDC)

Among the major players in the server industry, IBM and Hewlett-Packard vied for first place in both sales and market share with a statistical tie. Big Blue took a 31.8 percent slice of the market, with a 12.9 percent drop in third-quarter sales to $3.3 billion. HP grabbed a 30.9 market share as its revenues fell 16.8 percent to $3.2 billion.

Third-place Dell saw its sales decline only 6.8 percent to $1.4 billion, helping it capture a 13.5 percent share of the market.

With its future cloudy, pending regulatory approval of its takeover by Oracle, Sun Microsystems suffered a 35 percent drop in third-quarter sales to $778 million. Reports have surfaced that IBM and HP, among others, have taken advantage of the uncertainty surrounding Sun to lure over several of its customers.

Bringing up the rear of the top five was Fujitsu, which saw an 8.2 percent drop in sales to $594 million, carving out a 5.7 percent slice of the market, an improvement over its position from last year's third quarter.

Though optimistic that the market will continue to improve in the fourth quarter and beyond, IDC is still waiting to see how the recovery plays out.

"IDC believes that platform migration is once again gaining steam in the market and the post-recession server deployment patterns will establish the technology agenda in the datacenter for the next business cycle," said Eastwood. "For server vendors, after five quarters of market contraction, the next few quarters will be critical to determining the technology platform winners and losers in the years ahead."

It's still dog days for those in the business of making and selling PCs.

Global PC shipments fell 2.4 percent in the second quarter of the year compared with the same quarter last year, and the value of those shipments dropped 19.1 percent over the same period, according to a report released Wednesday by IDC.

Desktop shipments dropped 17 percent for the quarter as more and more people continue to opt for portables, according to IDC's Worldwide Quarterly PC Tracker report. Consumer laptops and Netbooks accounted for the only bright spot, with overall shipments growing 44 percent over a year ago from a low of 28 percent.

However, the growth in portables came at a cost. Traditional laptops saw shipment growth of 13 percent for the quarter, but the financial value of those shipments declined 6 percent.

Netbooks proved the most popular, with shipments rising almost 25 percent, from 5 percent a year ago. But again, this trend brought down overall value, with Netbooks costing around $400 compared with $900 for traditional laptops.

(Credit: IDC)

IDC sees better times ahead, expecting the market to improve for both unit growth and value. Desktop volume is forecast to be flat in 2010, but portable PCs will grow 16.5 percent, said the report.

The Netbook market will continue to rise. But the trend toward thin, light laptops using CULV (consumer ultra-low voltage) processors will limit the market share of Netbooks, boosting the value of overall PC shipments.

"Although mininotebooks have hurt margins of traditional notebooks, we can expect Ultrathin Notebooks based on new low voltage processors from Intel and AMD to somewhat stem the tide," said Jay Chou, research analyst for IDC's Worldwide Quarterly PC Tracker.

Over the longer haul, shipments of portable PCs should rise 17 percent on average through 2013, delivering 11 percent growth in total PC shipments and close to 5 percent in the value of those shipments.

The decline in PC chip shipments may be slowing but Netbook processor deliveries were off 33 percent, while Advanced Micro Devices gained on Intel, IDC said.

In the first calendar quarter of 2009, worldwide PC microprocessor shipments fell 10.9 percent from the fourth quarter of 2008, compared with a 17 percent decline from the third quarter to the fourth quarter, according to IDC.

AMD gained on Intel in the first quarter. Intel garnered a 77.3 percent unit market share, a loss of 4.7 percent, while AMD had a 22.3 percent share, a gain of 4.6 percent. AMD gained in the mobile and desktop PC markets, IDC said.

Overall, shipments were down, though the rate of decline may be slowing. "The PC processor market continued to reflect significant decline in end demand for most of 1Q09," said Shane Rau, director of Semiconductors: Personal Computing research at IDC. "However, some inventory replenishment by (PC makers) at the end of the quarter helped to slow the decline and bring the quarter in at a level only slightly worse than typical seasonal decline."

IDC noted that demand from PC suppliers picked up towards the end of the quarter but the market researcher cautioned that the demand was due to PC manufacturers "replenishing their inventories rather than reflecting a return of solid end demand and return to market normalcy."

Unit shipments dropped 13 percent from the first quarter of 2008 to the first quarter of 2009.

Intel's shipments of Atom processors for Netbooks plummeted 33 percent in the first quarter of 2009 compared to the fourth quarter, indicating that Netbook suppliers held significant inventory of Atom processors coming into the new year, according to IDC.

Worldwide PC processor shipments fell sharply in the fourth quarter of 2008, though Intel's Atom chip bucked the trend, according to new data from IDC.

In the fourth quarter, processor unit shipments declined 17 percent quarter over quarter and 11.4 percent year over year, while market revenue declined 18 percent over the previous quarter and 22.2 percent compared to the year-earlier period to $6.78 billion, IDC said.

"The decline in PC processor unit shipments in the fourth quarter was the worst sequential decline since IDC started tracking processor shipments in 1996," said Shane Rau, a chip analyst at IDC.

(Credit: IDC)

For the full year, total PC processor unit shipments grew 10 percent, while revenue grew 0.9 percent to $30.8 billion.

Intel's Atom processor is proving to be recession-proof. The popular Netbook chip prevented overall unit decline percentages from going above 20 percent. Without Atom, worldwide PC processor unit shipments would have been significantly worse: declining 21.7 percent quarter over quarter and 21.6 percent year over year, IDC said.

Intel grabbed an 81.9 percent unit market share in the fourth quarter, up 1.1 percentage points over the previous quarter. AMD fell to 17.7 percent, a loss of less than 1 percentage point. For the full year, Intel had an 80.3 percent unit market share, a gain of nearly 3 percentage points, while AMD's share dropped to 19.2 percent, a loss of 3.1 percentage points.

In 2008, Intel gained 4.8 percentage points in mobile PC processor market share, garnering 87.1 percent of the market. AMD finished with a 12.1 percent share of the mobile PC processor market, a loss of 5.3 percentage points.

Looking ahead, IDC said demand remains so weak that it expects sequential processor unit shipment to decline in both the first and second quarters of 2009.

Analysts are readjusting their expectations for the PC industry next year, and it's not looking good.

On Wednesday, IDC released an updated forecast for the number of PCs expected to be shipped next year. In 2009, PC shipments will rise just 3.8 percent worldwide, according to the report.

That's a drastic cut from the 13.7 percent growth IDC had predicted for 2009 earlier this year. The hardest hit areas will be the emerging PC markets of Latin America, Central Europe, the Middle East, and Africa due to falling commodity prices and the worldwide credit crunch.

But the U.S. PC market is expected to fare even worse. Next year will bring a decline in shipments of PCs by 3 percent compared to this year. However, IDC says that there will be "low single-digit" increases in the years following.

The key factors affecting PC shipments are the rate of portable PC adoption, falling prices, and the PC upgrade cycle.

"Low-cost mini notebooks will help volume, but pressure margins and revenues," said Lore Loverde, director of IDC's Worldwide Quarterly PC Tracker. "Consumer and commercial segments will be much more conservative in their purchases over the coming year or two, and while low prices will remain essential, they will not drive volumes as they did in the past few years."

There's not a lot of good news about the PC industry lately.

Gartner is predicting that IT spending will be down, and Intel says it sees significantly lower demand for its chips. Now add to that iSuppli's doom-and-gloom prediction that PC shipments will rise only 4.3 percent in 2009, and 7.1 percent in 2010.

It's a pretty dramatic change from what the industry analyst company had previously forecast: shipments rising 11.9 percent next year, and 9.4 percent in 2010.

The PC market has been growing at rates of at least 10 percent per year for the past six years, but all that will change because of the severity of the current economic situation, iSuppli said Thursday.

The credit crunch that has already done in the likes of Circuit City, will continue to affect large PC makers, component suppliers, as well as consumers, the people who buy these PCs.

"The result of the financial turmoil is less money to spend, and often that money is itself more expensive," said Matthew Wilkins, principal analyst of computer platforms for iSuppli. "With less money to spend, application markets, like PCs, have been impacted."

Despite the dreary picture iSuppli paints, Hewlett-Packard, the world's largest PC supplier, says its third-quarter revenue is expected to improve 19 percent over the same quarter's results a year ago.

Updated throughout at 2:30 p.m. PST.

A crush of warnings are descending on Intel, AMD, and the PC industry this week.

First up, Avian Securities. The brokerage company said that PC makers "are being very conservative with their build plans for Q4."

Market researcher IDC is equally pessimistic. "The supply chain is telling us that there is strong concern for demand decline," according to Shane Rau, an analyst at IDC. He is cutting his processor forecast "probably into the low to mid single digits on a unit basis for total PC processor growth in the year 2009."

Investment bank Friedman Billings Ramsey (FBR) cut estimates for AMD and Intel on Tuesday. Like other analysts, FBR's Craig Berger cited signs of weakness for both notebook and motherboard manufacturers in Taiwan.

For Intel, FBR's fourth-quarter pro-forma earnings per share (EPS) estimate falls to 30 cents, from the previous estimate of 36 cents. The fourth-quarter revenue forecast is cut to $9.8 billion from $10.4 billion

For AMD, FBR now sees a fourth-quarter pro-forma loss of 24 cents, worse than a previous estimate of 19 cents.

Barclays Capital chimed in too. The investment bank sees 2009 processor units up only 2 percent, down from a previous estimate of 5 percent.

Other Wall Street firms such as Piper Jaffray and ThinkEquity are citing weakness. ThinkEquity has a sell rating on Intel due to significant weakness in corporate notebook demand and a steep reduction in notebook orders from Dell and Acer.

Avian Securities spoke to why demand is off. "PC OEMs...are worried about having too much inventories if end-market demand comes in materially weaker than expectations this holiday season."

Intel's Atom processor lifted processor shipments in the third quarter but the future for overall processor shipments is uncertain, IDC said.

Intel's Atom processor lifted shipments in the third quarter, IDC said.

Worldwide PC microprocessor shipments in the third calendar quarter of 2008 reached record levels again, according to market researcher IDC. However, the outlook for the processor market in the fourth quarter and 2009 is "very murky," said Shane Rau, director of Semiconductors: Personal Computing research at IDC, in a statement.

Worldwide PC processor unit shipments grew 14 percent quarter over quarter and 15.8 percent year over year, while market revenue grew 7.6 percent from the previous quarter and 4.1 percent compared to a year ago to $8.3 billion.

Intel's new Atom processor for the Netbook market "made a notable difference in the overall market performance," Rau said. Without Atom, unit shipments grew 8.3 percent from the second quarter and 8.7 percent from the same quarter last year.

"Not considering the effects of Atom, the overall market still grew at a decent pace in the third quarter," Rau said. "Intel's and AMD's shipments grew at a rate only slightly slower than typical for a third quarter, and seasonal demand appeared reasonable up until September."

"Up until September" may be the operative phrase, however, as that's when the U.S. financial markets fell sharply. "The worldwide demand environment looks weak, and both Intel and Advanced Micro Devices indicated an uncertain outlook for the market. As a result, IDC is conservative about 2009 and will be lowering its upcoming unit forecast for the year, the report said.

By segment, while the mobile processor segment grew aggressively, the server segment was soft, Rau said.

Third-quarter vendor highlights based on units shipped:

• Intel claimed an 80.8 percent market share, a gain of 1.1 percent.

• AMD finished with 18.5 percent, a loss of 1.2 percent.

• Via Technologies earned a 0.6 percent share.

More dire forecasts for the chip industry.

On the heels of comments from a chip industry watchdog group last week saying the chip equipment business is "on hold," Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest contract chip manufacturer, said PC-related chip shipments are expected to be off 20 percent in the fourth quarter.

This bodes ill for PC makers, which appear to be cutting way back on chip orders.

"(For) our fourth quarter computer-related wafer shipments...we expect to see over a 20 percent decline. Which is very severe...compared to a seasonal mid-teens percentage growth," said CEO Rick Tsai on Thursday, speaking during the company's earnings announcement.

TSMC is considered an industry bellwether because it makes graphics chips for both Advanced Micro Devices and Nvidia and manufactures a variety of chips that go into cell phones and consumer electronics devices as well as other chips for PCs.

The "supply chain"--the myriad of companies that order chips from TSMC--is "reducing inventory very aggressively," he said.

Because of the state of the world's financial markets, "most our customers are aggressively paring their inventories and have thus reduced significantly their wafer demand," said Lora Ho, VP and chief financial officer of TSMC.

"We believe the foundry sector will likely underperform the overall semiconductor industry in 2009," he said. Foundry refers to a contract chip manufacturer. "In 2009, we now expect the semiconductor industry to decline by mid-to high single digit in 2009. With very little visibility."

TSMC reported a net profit of NT$30.574 billion ($930 million) in the July-September quarter, the company said Thursday. That was slightly higher than NT$30.4 billion reported a year ago.

Chartered Semiconductor, another large contract chip manufacturer, also said on Thursday that it "started to see orders declining from the middle of August, followed by some customer requests to reschedule deliveries forward. The weakness is expected to deepen into the fourth quarter."

The prepared comments continued: "Based on current outlook, we are guiding for Chartered revenues to be down approximately 21 percent sequentially...in the fourth quarter. In line with the demand outlook, we are also reducing our capital expenditure for 2008 to $650 million, which is $100 million lower than the amount we had earlier anticipated."