Gene and thread, surprised the article below from the San Jose Mercury News has gone unposted this long (came out at 7:38 PDT 9/22). Graph on oversupply of unsold PCs...good trend but I'm not sure what the absolute magnitude of the numbers means. You have to hit the URL to see the graph.
Intel and AMD mentioned in the best light because of the reduction of PC inventories.
Kurlak mentioned and they misspelled his name as is commonly done. Gee, he should get more respect. Comments about Intel 3Q +10% expected revenues not expected to be reflected in better earnings for the quarter (in bold) sounds like from his mouth only, to me. Anyone else not expecting better than previous earnings estimates since Intel upped revs statement for this quarter?
sjmercury.com
Posted at 7:38 p.m. PDT Tuesday, September 22, 1998
Intel offers hope of chip
industry rebound
BY TOM QUINLAN
Mercury News Staff Writer
Intel Corp.'s recent announcement that sales and
earnings would be appreciably better than expected
this quarter offered a brief glimmer of hope that the
semiconductor industry's year-long downturn might
be coming to a close.
But even though
Intel's sales are
expected to benefit
from PC
manufacturers'
increasing demand
for chips, the
outlook for most
semiconductor
companies remains
bleak for the near
term.
Market conditions
that have
hammered Silicon
Valley
semiconductor,
equipment and
peripheral
manufacturers
since last year --
too much capacity, a flailing Asian economy, and
falling component prices -- remain largely
unchanged.
The most hopeful news for the industry is that the
largest PC companies at least seem to have come to
grips with their most significant problem: a massive
oversupply of computers that drove prices sharply
down and curtailed the manufacture of new
machines.
Competing PC makers blame one another for stuffing
the channel, yet a number have also taken steps that
ease the pressure.
HP and Compaq Corp. have concentrated on
providing fewer models, letting dealers assemble
more custom configured PCs.
Compaq, the largest PC manufacturer in the world,
also changed its sales executives compensation
program in April. To help discourage excess
inventory, pay and bonuses once based on sales to
computer resellers now based on sales to customers.
''The big difference now is that the inventory
pressures have significantly lessened,'' said Jim
McDonnell, vice president and general manager of
HP's PC division.
''PC companies have corrected their inventory
problems, so they're buying more products now,''
Brookwood noted.
That translates into some good news, at least, for
semiconductor companies like Intel and Advanced
Micro Devices Inc.
Intel issued a September 10 advisory that sales,
expected to be flat for the quarter, would be up by as
much as 10 percent.
''Intel's generally a pretty good indicator of the
health of the PC industry, because it supplies
virtually all of the PC companies with products,''
said Lynley Gwennap, editor of the Microprocessor
Report, a San Jose-based industry newsletter.
Thomas Kurlack, a financial analyst for Merrill
Lynch & Co., increased his earnings estimates for
AMD for the fourth quarter to $0.14 per share,
compared to the break-even quarter he had forecast
earlier. But other semiconductor companies, even
those that rely on sales to PC companies, are still
going to be hurt by the oversupply of semiconductor
manufacturing capacity that's driving prices down for
everyone.
''Intel doesn't face 20 other competitors as DRAM
manufacturers do, as modem manufacturers do, as
graphics chip guys do. That drives prices down, and
its going to stay that way for a long time,'' said
Nathan Brookwood, a senior industry analyst for
Dataquest, a San Jose-based market research firm.
Financial analysts expect Intel's earnings to remain
unchanged from the previous quarter even as sales
increase by as much as 10 percent. An unexpected
increase of that magnitude would normally translate
into windfall profits for a semiconductor company.
At best, suggested Dataquest's Brookwood, the
rebound of PC manufacturers could mean the
high-tech sector's economic downturn has reached
bottom.
But even so, it will still be at least a year before the
semiconductor industry as a whole benefits from an
upturn, he added.
It might even get worse before it starts to get better.
Compaq is asking component companies for disk
drives, modems, and other parts for computers
priced at less than $500. Although a handful of small
companies are already selling sub-$500 PCs,
Compaq could legitimize the rise of very low-cost
PCs, but at the cost of further depressing
semiconductor companies' dollar volume and
margins.
Compaq currently is in its quiet period before
announcing third quarter earnings and declined to
comment on this story, but in August, Eckhard
Pfeiffer confirmed that Compaq was trying to
develop such a system.
The hit from spiralling PC prices is compounded by
the slowing growth in PC sales.
International Data Corp. recently revised its 1998
PC sales for the year down again. Sales growth this
year is now expected to be 11 percent, said senior
industry analyst Roger Kay. Previously the
Framingham, Mass., research firm had expected
growth of better than 17 percent for the year.
''PC companies, like Compaq, and HP are doing
better primarily because they are responding better
to market conditions,'' said Charles Goldenberg, a
partner in Deloitte&Touche Consulting's High
Technology Group. ''We don't expect sales to
approach their historical growth rates for another
year or two.''
But whatever happens with PC growth rates, the
semiconductor industry isn't likely to rebound until
the economy in Asia picks up, and excess capacity
dries up, observers said.
Although PCs by themselves account for an estimated
47 percent of all semiconductors sold (in dollar
value) much of that is in the form of various types of
PC memory, the sector that has suffered the most
from overcapacity.
''The truth is, the worst from Asia is not over yet,''
said Ross C. Devol, director of regional studies for
the Milken Institute in Santa Monica, Calif., which
recently published ''The Asian Crisis Tsunami,'' a
report that which examines Asia's impact on
California's economy.
The financial situation in Asia -- which has seen the
economies of South Korea, Thailand, and Indonesia
all but collapse while Japan is in the midst of a
three-year recession -- has already been identified as
the primary culprit for a year of dwindling sales,
lower profitability or even losses, and layoffs at
such disparate companies as Applied Materials, LSI
Logic, and Seagate Technology.
Since last year, semiconductor sales have dropped
by 17 percent, according to a report by Morgan
Stanley analyst financial analyst Jay Dehanna. The
report also projects a book-to-bill ratio -- the
number of new orders compared to existing orders --
for the months of August and September to range
between .67 or .71 to 1.
Preliminary estimates by the Semiconductor
Equipment and Materials International trade group,
are even worse, with SEMI estimates that the
book-to-bill ratio for August was .60 to 1.
That translates to $60 in new orders for every $100
of products shipped. Last August, the book-to-bill
ratio was 1.07 to 1.
And chipmaker United Microelectronics put on hold
a $14 billion investment in capital equipment, citing
a capacity glut that the company estimated would
further erode semiconductor prices by 10 percent in
the first part of 1999.
''We may have seen the bottom of the slump''
Gwennap said, ''but it's going to be a year or two
before we see things actually get better. First
companies have to eliminate the overcapacity
situation, then they have to return to profitability, and
it's only after that they will begin to start ordering
new production equipment again.''
And yet some indicators, independent of Intel, are
starting to pick up.
While semiconductor companies are suffering
through a tough August and September, Dehanna is
also predicting that in November the book-to-bill
ratio will reflect positive growth with $107 in new
orders for every $100 worth of product shipped.
And companies -- and countries -- are starting to
address the fundamental problem of too much
capacity, analysts said.
''You're seeing Korean and Japanese companies take
production off-line in order to reduce capacity,''
Gwennap noted. ''I'm aware of five mega-fabs that
aren't producing at full capacity. And that's a good
thing.''
And the industry, however fitfully, is starting to
benefit from those moves.
Last week Micron Technology Inc. -- the largest U.S.
manufacturer of memory chips following its
acqusiition of Texas Instruments DRAM operations
-- raised prices for its 64-megabit memory to more
than $8, up from $7.60 just a few weeks ago.
Mercury News wire services contributed to this
story.
|
