Nanotech - The Circuits Blog

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.

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.

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.

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.

Jon Peddie Research said Thursday that estimated graphics chip shipments in the fourth quarter plummeted 34 percent from the third quarter--a very atypical month-to-month decline.

AMD, Intel, Nvidia 2008 laptop graphics chip market share by quarter

(Credit: Jon Peddie Research)

"The fourth quarter is usually a positive quarter for the computer industry. There has obviously been some inventory problems in the quarter," said Jon Peddie, president of Tiburon Calif.-based research firm, in a statement.

And it will get worse. "We're...bracing for what will probably be the worst Q1 and Q2 decline we've seen since the Internet bubble pop of 2000," he warned.

Total shipments of GPUs for the fourth quarter of 2008 were 72.35 million, down 28.5 percent from 100.5 million GPUs shipped in the same quarter last year. And in the third quarter of 2008, 111.26 million units shipped, representing a 34 percent sequential quarter-to-quarter drop. (GPU stands for graphics processing unit.)

"Vendors were bracing for a slower than usual quarter due to economic factors, but performance this quarter was surprisingly low," Peddie said. He attributed it to the usual suspects: the worldwide financial market decline and sapped consumer spending.

In the desktop segment, Nvidia has held a slight edge with a market share of 37.9 percent, gaining on Intel, Peddie said. AMD also gained market share on the desktop, going from 20.3 percent in the third quarter to 21.4 percent in the fourth quarter. "Given the tough circumstances of this quarter, AMD's increase is no mean accomplishment," Peddie said.

Updated at 6:15 p.m. PST with AMD statement about a letter it received from Intel on January 20.

Advanced Micro Devices on Thursday reported a bigger-than-expected net loss of $1.4 billion for the fourth quarter of 2008. This is the chipmaker's ninth consecutive quarterly loss.

AMD also disclosed that it received a letter from Intel regarding the two companies' patent cross-licensing agreement.

The $1.42 billion loss, or $2.34 per share, was below the $1.77 billion loss, or $3.06 per share, reported a year ago but worse than Wall Street analysts had expected

Excluding one-time charges, AMD lost 69 cents per share, larger than the loss of 54 cents per share predicted by analysts.

AMD, like Intel and TSMC, has seen a precipitous drop in orders from customers.

Fourth-quarter 2008 revenue came in at $1.162 billion, down 35 percent compared to the third quarter of 2008 and 33 percent compared with the fourth quarter of 2007. Fourth-quarter 2008 revenue was down 28 percent sequentially, excluding third-quarter 2008 process technology license revenue of $191 million, AMD said.

For the year ended December 27, 2008, AMD had revenue of $5.808 billion, while the fiscal 2008 net loss was $3.098 billion. This compares with revenue of $5.858 billion and a net loss of $3.379 billion for fiscal 2007.

AMD provided little future guidance. "In light of the current macroeconomic conditions, very limited visibility and continued corrections in the supply chain, AMD expects first quarter 2009 revenue to decrease from the fourth quarter 2008."

Chief financial officer Bob Rivet said during the earnings conference call Thursday that "factory utilization will be crummy, considering the demand environment." This sentiment echoes what Intel said last week about abysmal factory utilization due to sinking demand from customers. And clear evidence of this trend was provided Wednesday when Intel said it would close five plants.

AMD had warned in December that fourth-quarter revenue would be significantly lower than previously expected.

AMD's stock has been trading around $2 and has lost more than 50 percent of its value since the end of September when the stock was trading above $5.

AMD receives letter from Intel

AMD also disclosed on Thrusday in an 8-K filing with the Securities and Exchange Commission that it received a letter from Intel relating to the patent cross license agreement between the two companies. The agreement covers the x86 instruction set architecture that the companies use in their processors.

An excerpt from the AMD statement in the 8-K filing is as follows: "On January 20, 2009 the Company received a letter from Intel Corporation relating to the 1976 and 2001 Patent Cross License Agreement between the Company and Intel (the 'Cross-Licenses'). In the letter, Intel requests a meeting with the Company to discuss whether The Foundry Company qualifies as a licensed 'Subsidiary' under the Cross-Licenses, whether the creation of The Foundry Company is a breach of the provisions of one of the Cross-Licenses and whether either the transaction establishing The Foundry Company or the Company's 2006 acquisition of ATI constituted a change of control of the Company under the Cross-Licenses."

The Foundry Company is the chip manufacturing operation that AMD is in the process of spinning off.

AMD said it "strongly believes that The Foundry Company qualifies as a 'Subsidiary' under the Cross-Licenses, that the creation of The Foundry Company is not a breach of the provisions of either of the Cross-Licenses and that neither the transaction establishing The Foundry Company nor the Company's acquisition of ATI constituted a change of control of the Company under the Cross-Licenses."

Updated at 11 a.m. PST with additional information from analysts.

These are not ordinary times. Not for Advanced Micro Devices, which reports earnings on Thursday. Nor for Intel.

For starters, AMD said last week that it would slash its workforce by 9 percent and institute temporary salary cuts.

This comes as the company enters the final stages of bifurcating into AMD the product company, which designs chips, and The Foundry Company, which manufactures them. A measure taken to stave off collapse. (There are still a few more steps that have to be taken before the split is sanctioned by all entities involved.)

The Sunnyvale, Calif.-based chipmaker also faces the Herculean task of returning to breaking even in operating income, according to Ashok Kumar, an analyst at investment bank Collins Stewart.

The world economy isn't cooperating, however. AMD, like Intel, has to face a difficult first quarter and possibly troubled second quarter. These two quarters are historically weak to begin with. Add the unusually negative macroeconomic factors on top of that and "recovery isn't looking like a first half kind of thing" for AMD, according to an industry source who follows the company and expects AMD to paint a less than rosy picture.

"This doesn't look like one of your normal semiconductor cycles, where you pop out of it very quickly and very aggressively, and overtake any dips," said the source.

And speaking of dips, Taiwan Semiconductor Manufacturing Co., the largest contract chip manufacturer and major industry bellwether, said on January 9 that December net sales on a consolidated basis were off 30.1 percent from November 2008 and off a whopping 51.9 percent (54.8 percent on an unconsolidated basis) from December 2007. TSMC reports fourth-quarter results on Thursday too.

The situation for Intel--which reported a 90 percent dive in year-to-year fourth-quarter profits last week--isn't that different. Bloomberg is reporting that Chief Executive officer Paul Otellini told employees last week in an internal memo that a first-quarter loss is possible after 87 quarters of profit.

But Intel said as much publicly in its earnings conference call last week, refusing to give official guidance for the first quarter due to heightened uncertainty and then bringing up a possible scenario in which things don't improve as expected.

Chief Financial Officer Stacy Smith put it this way during the conference call: because of the dramatic drop-off in demand from customers (what Intel calls "the supply chain") in the fourth quarter, the chipmaker is "aggressively" reducing factory utilization in the first quarter. "The expectation is that we can start to reload the factories a bit in Q2 from where they are in Q1," he said. But he then addressed a "hypothetical" situation where conditions don't improve as expected.

In this case, Smith said Intel would slow the introduction of next-generation 32-nanometer manufacturing process technology. (Currently Intel chips are based on 45-nanometer technology.) "Over time if our view of demand is wrong and this is much worse than we expect...we'd slow the ramp rate of 32-nanometer," he said.

The question is what measures AMD will take if its already precarious situation gets worse. Doug Freedman of Broadpoint AmTech estimates that AMD's two-quarter sales decline is about 30 percent, though AMD may be faster at correcting excess inventory than Intel.

"We expect the operating income break-even level to be imminently lowered through more permanent cost controls given near-term challenges in the PC-related food chain," Freedman said in a research note Wednesday.

Collins Stewart's Kumar said he thinks AMD may have to further "cost-reduce" itself back to profitability.

Updated at 12:15 p.m. PST with information from iSuppli.

Nvidia is slashing fourth-quarter revenue guidance 40 percent to 50 percent. This comes on the heels of Intel's revision last week. Both companies are citing collapsing demand from customers.

"Total revenue for the fourth quarter of fiscal 2009 is now expected to decline 40 percent to 50 percent sequentially as a result of further weakness in end-user demand and inventory reductions by Nvidia's channel partners in the global PC supply chain," the largest graphics chip supplier said in a statement Tuesday.

This revises the fourth-quarter guidance provided during its third-quarter financial conference call held November 6.

Based on Nvidia's third-quarter sales of $897.7 million, expected declines of between 40 percent and 50 percent would put fourth-quarter revenue somewhere between $538 million and $449 million. Nvidia will report fourth-quarter earnings on February 10.

The new guidance follows an Intel fourth-quarter warning last week (its second) that revenue will fall $2 billion short of its original forecast, due to PC makers curtailing chip orders.

Most of the major PC chip suppliers, including Taiwan Semiconductor Manufacturing Company (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 fourth 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.