Non-PC semiconductor forcast.......................
electronicnews.com
PC Chip Slump to Continue This Year
Midyear recovery expected for non-PC semiconductors
By Jayant Mathew
The semiconductor industry, with the exception of PCs, is expected to recover from the inventory overhang by the middle of this year, but the PC market will continue to face challenges for a longer period of time, said Drew Peck, semiconductor analyst with SG Cohen. Peck, speaking at the Wall Street analyst forum last week. He went on to say that excess capacity, inventory and slack consumer demand will plague the PC market.
This is good news for semiconductor companies in the communications sector, but not for Intel Corp. and Advanced Micro Devices Inc. (AMD). "Intel and AMD have high capacity, inventory and every other week Intel is cutting prices," Peck said. "Average selling prices will not be stable."
Since very little can be done in terms of technological innovation in PCs, the only selling point for PC chipmakers is price, and even Intel (nasdaq: INTC) is cutting prices at alarmingly short intervals. PC chipmakers such as Intel and AMD (nyse: AMD) will struggle to maintain their average selling prices, Peck said, because of weakened consumer demand for PCs. Earlier this year, AMD was confident it would increase the average selling price of its chips to between $90 and $100 but that now seems unattainable. Last quarter AMD's average selling price was $81.
Intel follows an aggressive pricing strategy, mainly to push the Pentium 4, so much so that all Pentium IIIs sell for less than $300, yet still maintain a significant differential over Athlons of similar configuration. Intel sells more chips, but its pricing strategy will reduce its margins over time, Peck said.
Last quarter, Intel's average selling price was $215 but that is expected to reduce to around $205, according to analysts, because of the larger die size of the P4 and greater demand for the cheaper Celeron.
Peck sees a technological shift from the PC era to a demand-side era where there is dynamic demand and horizontal integration. He said the non-PC-related semiconductor industry is plagued by an inventory problem, not a consumption problem.
"We are still seeing strong consumption by end-users," he said. Customers and contract manufacturers, in this case, hold most of the inventory. This was due to an inability of semiconductor companies to stop inventory build-up after the Asian financial crisis in 1998. "They should have stopped at the end of 1999," Peck said.
Networking companies like Cisco Systems Inc. have built astounding levels of inventory, but in the handset market, technological innovation typically displaces an old product every six months.
Peck is bullish on semiconductors in communications along with those supplying components to untapped markets like cable, DSL and wireless LAN markets. In addition, he said consumer electronics is expected to make a comeback for the first time in 25 years. However, he predicts a weak first quarter for all semiconductor companies. |
