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Technology Stocks : Compaq -- Ignore unavailable to you. Want to Upgrade?

To: tonyt who wrote (92194)	7/18/2001 5:35:42 PM
From: tonyt	Read Replies (1) \| Respond to of 97611

Intel, AMD's rising chip shipments raise questions Jul 18 2001 16:50PM By Duncan Martell SAN FRANCISCO, July 18 (Reuters) - Both Intel Corp. and Advanced Micro Devices Inc. said this week they shipped more microprocessors in the second quarter, which has raised a question for analysts: where are all those chips -- the computing engines of personal computers -- ending up? The problem is that worldwide sales of PCs in the second quarter are forecast to be either virtually unchanged from the first quarter, or to have declined by 3 percent to 5 percent, according to industry estimates. That raises the risk that microprocessors from Intel and AMD could be piling up as inventory at the distributors for major PC makers or on the shelves of those same computer makers. The more optimistic interpretation is that PC makers, having burned through bloated inventories during the first quarter, are now back and ordering more processors. "My personal belief is that this is the big unit shipment surge people were looking for," said Lehman Brothers analyst Dan Niles. "But it's just not going to get that much better from there." Market researcher Gartner Dataquest said that in the first quarter, PC shipments in the United States declined 3.5 percent to 10.9 million units while global PC shipments rose a sluggish 3.5 percent to 32.5 million units. That weak demand, along with unsold PCs left over from the fourth quarter of 2000 led PC makers such as Compaq Computer Corp. and Hewlett-Packard Co. to suppress shipments during the first quarter to work down that inventory glut. That hurt Intel's and AMD's sales in the first quarter. But in the second quarter, Intel said it shipped 1 million more Pentium and Celeron chips than it did in the first quarter, a rise of about 6 percent. AMD also said its shipments rose by about 5 percent in the second quarter from the first, to 7.7 million units, though the average price Intel and AMD got for their processors declined, reflecting their fierce battle for market share. Even though the PC market is all but moribund, at least for this quarter, there are some who stand to gain in tough times. DELL BENEFITS FROM INDUSTRY LULLS Dell Computer Corp., which passed Compaq in the first quarter to become the world's No. 1 PC maker, has long benefited from lulls in the PC industry. Because it holds virtually no inventory and builds its PCs as orders come in, it can buy components at the latest and lowest prices and then pass them on to customers. But Hewlett-Packard and Compaq, which rely principally on distributors or retail stores for sales, can't move fast enough to pass on falling prices for screens, memory chips and other components to customers. "The only vendor who has a business model to play profitably in this environment is Dell," said U.S. Bancorp Piper Jaffray Inc. analyst Ashok Kumar. "Dell's comparably configured desktop PCs are 10 percent less than Gateway's and 25 percent less than Compaq's. Dell gained market share again in the second quarter. But even so, it's still just a larger piece of a shrinking pie. Gartner Dataquest and International Data Corp. believe Dell's first-quarter PC shipments surged 34.3 percent to $4.16 million, or 12.8 percent of the global market. "Dell's definitely gaining share, but who cares if worldwide PC shipments are down," Niles said. In addition to a small and temporary snap-back in demand for microprocessors in light of diminished PC inventories, it's also likely that more microprocessors are ending up in the hands of so-called whitebox manufacturers, which are smaller niche PC makers popular in Asia and Europe. "I think there's more business being pumped through them relative to the OEMs," Niles said, referring to original equipment manufacturers, or the large PC makers. Whatever the case, Intel made a bullish forecast -- given the current environment -- for the second half, saying that it is now confident it has returned to normal seasonal patterns typically seen in the PC industry. "Although the magnitude or timing may disappoint investors, we should be on the right path to a gradual recovery scenario," Piper Jaffray's Kumar wrote in a note to clients.