The chip recovery is under way, with quarterly sales forecast to increase year-over-year for the first time in 2009, according to a report from market researcher iSuppli on Tuesday.
Revenue from chip sales is expected to rise by 10.6 percent in the fourth quarter compared to the same period in 2008. This would mark the first time this year that revenue has risen compared to the same period a year earlier, according to Dale Ford, senior vice president, market intelligence, for iSuppli.
"The seeds of the current recovery were sown in the second quarter," said Ford. At that time, manufacturers began to report positive book-to-bill ratios, indicating future revenue growth. This was followed by more sequential revenue growth in the third quarter, according to Ford.
Semiconductor inventories returned to more normal levels in the third quarter after chip suppliers shed stockpiles, he added.
Earlier this month, chip giant Intel said third-quarter revenue was down only 8 percent year-over-year, an improvement over the 15 percent and 26 percent year over year declines in the second and first quarters respectively. Intel also indicated that it expects future growth. "We're finished with the cutting phase of our efficiency effort and now in the growth phase of that efficiency effort," said Intel's chief financial officer Stacy Smith at that time.
Overall, it's been a tough year, however. Global semiconductor revenue is set to contract by 16.5 percent in 2009, following a 5.4 percent decrease in 2008.
And iSuppli has added a good dose of caution to its report. Though sequential quarterly increases in revenue will continue into 2010, sales growth will not be sufficient to lift semiconductor revenue back to pre-recessionary levels until the 2011-2012 time frame, according to Ford.
And there are troubling indicators such as the climbing U.S. unemployment rate, which reached 9.7 percent in August and is projected to exceed 10 percent at its peak, which will continue to constrain consumer spending, Ford said.
Advanced Micro Devices posted a third-quarter loss of $128 million, lower than Wall Street projections, while also reporting revenue that beat expectations.
The loss, at 18 cents a share, compares with a loss of $134 million, or 22 cents a share, for the same period last year. Analysts had expected a loss of 42 cents a share.
Revenue was $1.4 billion, an 18 percent increase over the second quarter of this year, while falling 22 percent compared to the third quarter of 2008. Forecasts had called for only $1.3 billion in revenue.
"There was strength in notebooks and China," said Dirk Meyer, AMD president and CEO, speaking during the company's earnings conference call on Thursday afternoon. He added that there is "an increased focus on small form factor" laptops at AMD and that upcoming inexpensive, thin laptops based on AMD processors should be priced lower than Intel-based offerings. And Meyer said AMD will broaden its processor offerings in this area going into the holiday season.
Meyer also spoke to AMD's future 32-nanometer silicon. Products codenamed "Fusion" that combine the graphics function with the main processor will be based on 32-nanometer technology and ship in the second half of 2010, Meyer said.
AMD is currently moving most of its production to 45-nanometer-based processors. Intel, on the other hand, will begin to move to 32-nanometer by the end of this year. Generally, the small the geometry, the faster and more power-efficient the chip is.
Addressing graphics processing units (GPUs), Meyer said that its recently-introduced 5800 series products have been well received but that the average selling prices of GPUs were down compared to the prior quarter and are still below central processing units or CPUs, which are higher.
"Growth in microprocessor and graphics unit shipments drove an 18 percent sequential revenue increase, while improved factory utilization rates, higher microprocessor average selling price, and an increase in 45 (nanometer) product shipments resulted in a gross margin improvement from the prior quarter," Meyer said in a statement.
AMD expects its product company (non-manufacturing-related) revenue to be up modestly for the fourth quarter of 2009.
AMD was the world's second-largest seller of microprocessors in the second quarter of 2009 with an 11.9 percent share of global revenue behind market-leader Intel, according to market researcher iSuppli.
Updated at 3:30 p.m. PDT: adding comments from earnings conference call.
Updated at 3:10 p.m. PDT: adding comments from CEO Paul Otellini and CFO Stacy Smith.
Intel's third-quarter revenue jumped $1.4 billion over the second quarter, though year-to-year revenue and profit comparisons were down.
The world's largest chipmaker is struggling to lead the PC industry out of a brutal downturn that saw demand collapse earlier in the year.
Revenue came in at $9.4 billion, beating Wall Street expectations, which hovered at just more than $9 billion. Revenue, however, was down from the $10.2 billion reported in the year-earlier period.
On a year over year basis, revenue for the third quarter was down 8 percent, Intel said in a statement, adding that this was an improvement over the 15 percent and 26 percent year over year declines in the second and first quarters respectively.
Intel shares were up more than 5 percent after hours, trading as high as $21.45 form a regular closing price of $20.49.
"Overall (corporate) enterprise remains weak," said CEO Paul Otellini in the company's earnings conference call.
Profits were $1.9 billion, or 33 cents per share, down from the third quarter of last year, when Intel posted a profit of $2.0 billion, or 35 cents a share. But the 33 cents beat analyst forecasts, which were 28 cents per share.
The chipmaker's gross margin for the quarter, a crucial earnings indicator, was 57.6 percent, higher than the company was projecting.
Looking ahead, Intel expects revenue to hit $10.1 billion, "plus or minus $400 million," in the fourth quarter, and gross margin to improve to 62 percent, plus or minus 3 percentage points.
Intel also said the average selling price for microprocessors was slightly down sequentially.
Inventories were also down $315 million sequentially. Intel chief financial officer Stacy Smith said inventories were a little lower than Intel would like and that Intel intends to increase inventories in the fourth quarter.
Intel is expressing Moore's Law anew as packing key technologies into fewer chips. New "Clarksfield," "Arrandale" and "Jasper Forest" processors, among others, will showcase this theme later this month at the Intel Developer Forum.
Intel Vice President Steve Smith discussed the highlights of the annual marquee Intel event that will kick off September 22 in San Francisco in a phone interview on Friday.
"Contrary to speculation that Moore's Law is slowing down or potentially dying, we're here to demonstrate that it's alive and well," Smith said. "Integration gives you a smaller, better, faster, more mobile compute platform," he said. Moore's Law, named after Intel co-founder Gordon Moore, states that the number of transistors that can be placed on an integrated circuit doubles roughly every two years.
This theme will be manifested in a number of new processors including the first mobile processor based on Intel's new Nehalem microarchitecture codenamed Clarksfield and even more highly integrated processors to follow dubbed Arrandale and Clarkdale as Intel moves to its next-generation 32-nanometer manufacturing process.
True to its rich heritage of codenames, IDF can, at times, slide into little more than a series of codename-riddled Power Point slides, with some names sounding frustratingly familiar such as Clarksfield and Clarkdale. But codenames, for better or worse, are part and parcel of IDF.
Intel codename decoder:
- Clarksfield: 45-nanometer Nehalem mobile processor integrating I/O
- Clarkdale: 32-nanometer Nehalem desktop chip integrating graphics with CPU
- Arrandale: 32-nanometer Nehalem mobile chip integrating graphics with CPU
- Moorestown: 32-nanometer system-on-chip Atom for smartphones
- Sodaville: 32-nanometer system-on-chip Atom for consumer
- Pine Trail: new Atom for Netbooks integrating graphics with CPU
- Jasper Forest: 45-nanometer, first Nehalem embedded chip for uses such as storage hardware
- Larrabee: Intel discrete graphics chip that will compete with Nvidia, AMD
- Westmere: 32-nanometer manufacturing process technology
Smith said that Intel's move to the next-generation "Westmere" 32-nanometer manufacturing process will drive even more integration next year. "We have completed development and certification of the 32-nanometer process, which means our factory is fully qualified to run the wafers. And we are actually running Westmere CPU wafers through the factory in support of our Q4 revenue production. Absolutely on track for that Q4 revenue production," he said, referring to commercial production of 32-nanometer processors.
In the more immediate future, Intel will roll out a new mobile processor based on its current 45-nanometer technology. "We just announced Lynnfield (the Core i5 and i7 chips for desktops), Clarksfield is the equivalent product for notebooks," Smith said. "Quad-core, 45-nanometer. Based on Nehalem technology but optimized with power management and integration of the PCI express I/O. Moving from a three-chip solution in the original Nehalem products to two chips--and that is our path going forward." I/O, or input-output, is silicon that enables a processor to talk, and shuttle data, to other parts of the system and peripheral components.
Speaking more specifically about Clarksfield integration, Smith said that "the key elements are integration of memory controller, integration of PCI Express 'gen' 2, power management." Intel will also be talking a lot about a feature called Turbo mode. "Turbo mode is extremely important. If you're not using all the cores, the cores that are not used are powered down. The cores that you are using can run at a faster clock rate with Turbo mode," Smith said.
Smith spoke about the next-generation Atom processor for Netbooks and Nettops, "Pine Trail," too. This chip will also ... Read more
Updated at 2:30 p.m. PDT: adding statements from Dell.
Intel and Dell are indicating that PC demand may be increasing but it's not clear how sustained or strong this trend is.
The news Friday that Intel raised guidance is not a surprise, according to Ashok Kumar, an analyst at investment bank Collins Stewart. "It's in line with seasonal trends and reflects strong back-to-school build in the PC food chain," he said.
Kumar added, however, that the strength of actual sales to end users of PCs won't be known until later. "The ramifications for Intel is that they'll continue to see benefits from supply chain rebuilds but where the rubber meets the road is the actual back-to-school sell-through."
Broadpoint AmTech analyst Doug Freedman also cautioned that though PC "build rates are accelerating" and "inventory replenishment" is taking place, "inventory replenishment means that there is no inventory so they have no choice but to build," Freedman said.
But he added that Intel's guidance "affirms the thesis that PC recovery is under way. Consumer now, Enterprise next." Recovery is initially driven by consumer PC demand and then by corporations, usually one to two quarters later, according to Freedman.
Both Freedman and Kumar stated emphatically that the Windows 7 launch, at this point at least, is not having as big an impact on build rates as previously expected.
Related to Windows 7 is the expectation that latent demand will kick in for replacing old PCs at companies--an expectation that Intel and Dell have cited in earnings-related discussions. But don't expect blockbuster replacement numbers, according to Kumar. "Yes, you have an aging installed base but we don't expect anything more than 20 or 25 percent to come up for replacement," said Kumar.
Adding to the uncertainty are Dell's second-quarter results, which were not that encouraging, according to Kumar. "Most of the revenue stream came from the public sector. Enterprise and consumer remains weak," he said, referring to Dell's profit, which was down 23 percent, and stimulus-package funds that flow to the public sector.
And Dell made this cautious statement on Thursday: "In the third quarter, the company expects seasonal demand improvements from the Consumer and U.S. federal government businesses...Dell believes a refresh cycle in commercial accounts is more likely to occur in 2010...(but) the company continues to see pressure in the form of component costs and areas of aggressive pricing in the near term, and continues to take actions to offset these items."
"The problem for the industry at large is that ASPs (average selling prices) are dropping like a rock," said Kumar. And on a macro level "employment is still weak and consumer discretionary spending is under pressure," according to Kumar.
Advanced Micro Devices on Tuesday reported a net second-quarter loss of $330 million as the chipmaker offered a muted outlook for the rest of the year.
The $330 million loss, or 49 cents per share, compares favorably to a $1.2 billion loss, or $1.97 per share, in the same period last year. Analysts had forecast a loss of 47 cents per share.
Revenue of $1.18 was flat compared to the first quarter of 2009 and decreased 13 percent compared to the second quarter of 2008.
AMD expects revenue for the product company--which excludes the spun-off manufacturing operations--to be up slightly for the third quarter of 2009, a less positive outlook than the one Intel offered last week.
"Gross margin was disappointing," Dirk Meyer, AMD's president and CEO, said in a statement, referring to a crucial profit indicator. Gross margin was 37 percent compared to first-quarter gross margin of 43 percent. (Non-GAAP gross margin was 27 percent versus 35 percent in the prior quarter.)
But Meyer added: "New platform, microprocessor, and graphics introductions planned for the second half of 2009 position us well to improve margins and meet our financial goals for the year."
During the earnings conference call, Meyer spoke about the growth outlook for the rest of the year. "While we expect a return to sequential growth, I think it's too early to say, given the overall weakness in the macro economy, that we're going to return to normal seasonal growth," he said.
As a backdrop to the results, marker researcher iSuppli estimates that global PC unit shipments in the second quarter decreased by 5.2 percent compared to the same period in 2008. Shipments in the second quarter of 2009 declined to 66.5 million units, down from 70.2 million in the second quarter of 2008.
On the back of Intel's better-than-expected financials, an iSuppli analyst said Monday that chip inventories will recover, driving up sales in the second half of the year.
Following positive financial guidance from Intel and other chipmakers, global semiconductor revenue will increase by a sharp 10.4 percent in the third quarter and by 4.9 percent in the fourth quarter, according to Carlo Ciriello, a financial analyst for iSuppli.
This expected recovery comes on the heels of four consecutive quarters of chip inventory declines, which took their sharpest dive in the first quarter of this year, plunging by 15.1 percent. iSuppli forecasts that second-half inventories will increase modestly by 5.1 percent in the third quarter and 1 percent in the fourth.
"Falling demand in the first half of 2009 prompted a swift inventory correction among chip suppliers," said Ciriello, in a statement. "Companies dialed down (factory) utilization levels and cleared swaths of inventory by reducing Average Selling Prices (ASPs) in anticipation of continued depressed demand," he added, describing how the sluggish market conditions in the first half should set the stage for an inventory correction in the second half.
FBR Capital Markets analyst Craig Berger said in a research note Monday that because Intel's forecasts were much better than investors anticipated three months ago, he expects global demand to recover as "the world gets back to normal." Berger's comments appeared in the Wall Street Journal on Monday.
Nvidia has its own grand scheme for Netbooks, the tiny laptops that have gained wide acceptance running on software and hardware from Microsoft and Intel, respectively.
Michael Rayfield, general manager of Nvidia's mobile business unit
(Credit: Nvidia)At the giant Computex conference starting Tuesday in Taiwan, Nvidia will be showing hardware running on its Tegra processor and Windows CE, the version of Windows used most prominently to date in business-use handheld computers. And, down the road, Nvidia has high hopes for devices based on Google's Android.
Tegra is a system-on-a-chip that integrates a processor based on a design from U.K.-based ARM and Nvidia's GeForce graphics silicon, among other functions. The goal is to bring robust PC-like graphics to small devices such as Netbooks and handheld devices--the latter also referred to as mobile Internet devices.
In a break from Computex tradition, Nvidia will have phone companies in tow. "We're bringing the carriers in. I've got 100 people showing up from carriers at Computex," Michael Rayfield, general manager of Nvidia's mobile business unit, said in a phone interview Friday.
Tegra will be shown at the trade show in devices that manufacturers "are about ready to release into production," Rayfield said.
"The Internet is all about (Adobe) flash and HD (high-definition) now so we've built a platform that can do that," he said. "There are two operating systems we support. Microsoft Windows CE and, as it becomes more interesting for large screens, (Google) Android," Rayfield said.
"We do Android for smartphones and we're working to do hardware acceleration on Android as it goes to larger displays," Rayfield said. In February at the Mobile World Congress in Barcelona, Nvidia announced that it is working with Google and the Open Handset Alliance to get its Tegra processor into phones based on Google's Android operating system.
Android will likely appear commercially in larger devices, such as Netbooks, by the middle of next year, Rayfield said. "Android, as it stands now, does not do hardware acceleration," he said, referring to graphics-based acceleration of video and other multimedia applications. "We've already got 720p acceleration on Android internally," he said. 720p is a lower-resolution standard for high-definition video.
Rayfield continued. "Android has got a roar ahead of it but I think it's three of four quarters from a large-screen device. And the market wants something interesting before that."
... Read moreAt Intel's investor meeting Tuesday, CEO Paul Otellini discussed how the company is moving to system-on-chip technology in a big way.
Otellini began by saying that the market outlook remains positive. "A little better than we expected. So far, so good." He said he was "more firm in my belief that we will see seasonality in the second half," alluding to Intel's expectation that the PC market should pick up in the second half of the year. Otellini added that Gartner's forecast of a PC sales decline between 9 and 10 percent in 2009 may be too pessimistic.
Intel CEO Paul Otellini answers a question during the Intel investor meeting Tuesday
System-on-chip (SOC) opportunities will be driven by Intel's upcoming 32-nanometer technology. "All that you're doing is reducing (a computer) system to a single chip," he said. Market segments that will benefit from this technology are Netbooks, smartphones, and embedded devices, he said, adding that Netbooks and smartphones each represent a $10 billion market opportunity by 2011.
Otellini talked up Intel's new relationship with Taiwan Semiconductor Manufacturing Co., which involves "deep collaboration" on the Atom SOC chips used in smartphones. It means, he said, "taking Atom and porting it over to the TSMC process, to help further Intel architecture into those new markets."
Traditional PC markets will give way to "targeted micro-segments" such as the high-end desktop gaming segment, exemplified by PCs from Voodoo and Alienware, Otellini said. "The old big, beige, boring desktop is dead." Intel's upcoming Larrabee graphics chip will address this market, in addition to standard multicore processors.
The consumer desktop market will be transitioning to iMac-style all-in-one systems, Otellini said. There will be Atom-based "Nettops," small entry-level computers priced at a couple hundred dollars, he said. The desktop market will see "small growth" as people incrementally replace the 800 million units in use.
Otellini said Intel will mix and match technology across different product segments very quickly now--the number of cores and the type of graphics, for example, will be quickly rejiggered across different product categories.
Intel views its fab (factory) strategy as extremely important. Otellini said that Intel is one of the few companies that has committed to a next-generation 22-nanometer manufacturing process. "Intel was able to create a market for Netbooks faster than the (Nintendo) Wii and iPhone...Only Intel has the (manufacturing) scale to do this," he said.
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.
