Intel, AMD and the State of the Economy

When Intel and Advanced Micro Devices detail their first-quarter 2008 financial numbers later this week, industry watchers will be looking for more than just sales figures and updates to their chip road maps.

The two companies are the largest producers of x86 processors for servers, desktops and laptops, and both are seen as bellwethers of the technology industry. Intel will report its numbers first on April 15 and AMD will follow on April 17.

While the first quarter of the financial year is usually slower than the fourth quarter of the previous year, the industry will be looking closely at the numbers from AMD and Intel to determine if the current state of the U.S. economy has slowed IT spending.

AMD has already signaled that its revenue for the first quarter of 2008 will be down 15 percent compared with the fourth quarter. Typically, revenue usually decreases about 7 percent.

On the other hand, shipments of microprocessors are usually down about 6 percent in the first quarter, said Dean McCarron, principal analyst of Mercury Research. McCarron said, "If the first-quarter numbers are below what is usually the average from this time of year, it could mean that the markets are contracting a little bit more and that could be related to the overall macroeconomic situation."

Of the two companies, AMD finds itself in a much trickier financial situation. In addition to its sales being down 15 percent this quarter, the company announced that it is preparing to lay off 10 percent of its 16,000-person work force. The company's financial situation has been complicated by its acquisition of graphics tech company ATI in 2006 and delays with its quad-core processors.

When it discloses its numbers on April 17, McCarron said he thinks that AMD might also detail some of its restructuring plans, including its much discussed "asset-smart" strategy, although it will probably offer more information closer to the third quarter.

AMD CEO Hector Ruiz has said he expects the company to return to profitability by the second half of 2008.

On the technology side, AMD is also likely to detail how its quad-core Opteron chip, "Barcelona," is doing since the company fixed its design flaw and how AMD plans to ramp up its manufacturing from 65 nanometers to the new 45-nanometer process later in 2008.