Intel Investors - FINALLY ! A journalist discusses the LOSSES associated with sub $1000 PCs targeted by AMD, Cyrix and NSM !
This article is like a breath of fresh air (unless you are an investor in AMD, NSM/Cyrix and IDT !
Paul
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techweb.com
September 14, 1998, Issue: 1126
Section: News
Profits elude MPU makers at low end
Jennifer L. Baljko
Silicon Valley- Convinced that lower-priced systems will continue to drive the
PC market, most microprocessor vendors are plowing ahead with plans to
capitalize on the highly touted sub-$1,000 desktop segment.
So far, though, suppliers targeting the sector are finding it difficult to turn a
profit. National Semiconductor Corp. last week reported a loss of $104.8
million. And Integrated Device Technology Inc. said it expects to take
additional charges in its second fiscal quarter to account for a glut of products.
IDT said a few months ago that it had hoped that strong demand for its X86
microprocessor offset declining SRAM sales. But the WinChip line did not
ramp sufficiently because IDT couldn't quickly transition to higher clock
speeds.
Weakness in the worldwide PC sector, coupled with the pressure of supplying
low-cost chips for the sub-$1,000 PC sector, is placing companies in a
difficult position, analysts said.
"This is not a high-profit area for them," said Jonathan Joseph, an analyst at
NationsBanc Montgomery Securities, San Francisco. "They're getting
squeezed on the component side, and now they're getting squeezed on the
systems side. No one seems to be making money on these systems."
Except maybe Intel Corp., which expects to exceed Wall Street's estimates in
the current quarter. It expects to post sales that are 8% to 10% above the
$5.9 billion recorded in the second quarter.
Though Intel's anticipated growth ties in with strength in the PC market, it is
unclear how much of that comes from the sub-$1,000 market, because the
chip giant does not break revenue figures, said Dan K. Scovel, an analyst at
Fahnestock & Co., New York.
Intel did, however, indicate that the North American and European markets
were strong, which could imply that a portion of the business is heading in that
direction. "Based on market research that is out there, the sub-$1,000 market
is doing well stateside," Scovel said. "The sub-$1,000 market is accelerating."
Unit volume for the worldwide PC market this quarter is expected to grow a
modest 11%, compared with a 16% historical growth rate, reflecting a
weaker global demand that has been hampered by economic problems in the
Asia-Pacific region and Russia, according to International Data Corp.,
Framingham, Mass.
Despite Intel's good news, other companies supplying the sub-$1,000 PC
sector-Advanced Micro Devices Inc., National, and IDT-will continue to
have a slower go of it for the next few months, analysts said.
Santa Clara, Calif.-based National's loss of $104.8 million on sales of $469.6
million was down from net income of $62.6 million and sales of $656.7 million
in the year-ago period.
"The PC market is generally slower than last year," said Steve Tobak,
National's vice president of corporate marketing. "But we're starting to see a
pickup in business. The sub-$1,000 market has been the largest growth
opportunity we've seen for [National's] Cyrix [subsidiary], and we expect it to
increase dramatically. Cyrix is going to have a positive impact as we look to
achieve profitability."
It will take at least another quarter, though, for National to turn a profit,
according to company executives , who told analysts during a conference call
last week that they expect to report another unprofitable period in the second
fiscal quarter, ending November.
Despite the losses, National said bookings for PC-related products have
improved sequentially, an increase that may stem from the traditional seasonal
uptick. Company executives said they were cautiously optimistic about seeing
continued improvement in the PC area.
However, National expects that product ramp-ups at Cyrix-which has a
number of offerings targeted at lower-end systems makers, including the
yet-to-be introduced MXi line-will be a positive factor going forward.
The sub-$1,000 PC market is becoming a greater portion of overall PC
revenue, garnering about 40% of total U.S. retail and reseller mail order sales
in July vs. only about 20% last summer, according to Reston, Va.-based PC
Data Inc. Still, the category's thin margins and lack of profitability have some
analysts wondering who will be the likely winners.
AMD has had its share of problems in recent months. With softer sequential
and year-over-year sales and a net loss of $64.6 million in the second quarter,
AMD is now hanging its hat on the development of next-generation products
to garner more PC OEM attention.
"We have a lot riding on the K6-2," a spokesman said. "Our business plan is
to target the volume segment of the desktop category. The sub-$1,000
segment has become an important part of that business. There's a question in
the mind of some people whether that market is here to stay. We believe [it
is]."
Although the sub-$1,000 PC remains in the industry limelight, IDT has scaled
back its focus there, said Michael Tierney, director of investor relations.
The Santa Clara, Calif.-based company provides its WinChip product to
lower-end systems in emerging markets. But, rather than beef up equipment
and keep up with clock-speed demand, IDT is shifting its focus to the
communications segment, he said.
Copyright r 1998 CMP Media Inc.
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