The Semiconductor Beat
07:47am EDT 21-Aug-00 Salomon Smith Barney (Jonathan Joseph 415-955-4998) INTC
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MPUS EXPECTING PRICE CUTS WILL SPUR DEMAND
The slow summer for microprocessors continued this week, with brokers saying business is steady, but not yet accelerating into seasonal upturn. Intel (INTC---70.56, 1M) microprocessors traded down about two points to a 2% discount, on average, to list prices last week. PIIIs are running at a 9% discount to list, which suggests to us availability remains pretty good. In an apparent effort to make sure the seasonal rebound happens, both Intel and AMD took more aggressive price actions last week. According to brokers, AMD (AMD---70.63, 2S) cut prices on average 41%, impacting both high-end Athlons and Durons, to kick-start the summer pickup and to make room for their higher MHz products. Intel also cut prices on older products like the Pentium-III 500 and 550s; some brokers are anticipating more Intel price cuts in the popular 600MHz and faster ranges in the next week or two.
In general, microprocessors seem to be plentiful, depending on who you are. At least one major PC vendor commented that both Intel and AMD have become "a pleasure" to work with over the past few weeks, and that they are not too worried about supply for the second half. Another PC OEM said that supply was
good, although SKU proliferation was increasing the burden placed on manufacturing logistics. Indeed, Intel's product line encompasses Pentium-IIIs from 500MHz to 1.1GHz and Celerons up to 700MHz. AMD, in an explosion of SKUs, now sells Thunderbirds from 650MHz to 1.1GHz, legacy Athlons from 500MHz to 1GHz, Durons from 600-700MHz, and K6-2s from 350-500MHz, although the K6's are slowly being fazed out. The well-publicized mix shifts from desktops to notebooks at Dell, HP, and Compaq are also exacerbating logistical procedures. Although 14" LCD glass availability has improved greatly, we have heard that older 13" LCD panels have become short in supply. IBM, apparently, even decommitted some shipments of notebooks because of the problem.
Intel's bi-annual Developer Forum begins on Tuesday, August 22. Look for a very upbeat series of presentations on their 64-bit Itanium, 1GHz Xeons, and their next generation desktop platform featuring the Pentium-IV and the new 850 chipset. The company will probably let it be known officially the P-IV is slipping by a few months to late this year or early next. We expect management input to investors to be very positive on the outlook for Q3.
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