AMD the Latest Victim of PC Market Struggles

The chip maker is lowering its third-quarter financial forecasts, the latest example of problems for vendors tied to the declining PC space.

Advanced Micro Devices officials are lowering their financial forecast for the third quarter, offering the latest piece of bad news for tech companies tightly tied to the struggling PC market.

AMD announced late in the day Oct. 11 that revenue for the third quarter will fall about 10 percent compared with the second quarter, a significant adjustment from the 1 percent decrease company executives had previously forecast.

In the brief statement, AMD officials said the "lower-than-anticipated preliminary revenue results are primarily due to weaker-than-expected demand across all product lines caused by the challenging macroeconomic environment."

The chip maker is due to announce quarterly financial numbers Oct. 18.

AMD's downward forecast echoes that of larger rival Intel, which in September announced that third-quarter revenue will come in at about $13.2 billion, a drop from the $13.8 billion to $14.8 billion the company had forecast earlier. Intel officials put the blame on the struggling global economy, slowing PC sales and reduced demand in emerging markets.

Most of the major tech companies with strong ties to the PC business are being impacted by a market that is seeing declining sales. Along with a worldwide economy that is causing consumers and businesses to hold back on purchases, PC sales also are under pressure from the rapid adoption of smartphones and tablets as well as from some consumers delaying PC purchases as they await the Oct. 26 release of Microsoft's new Windows 8 operating system.

The PC market as a whole is seeing fall sales, and those companies tied to it—not only Intel and AMD, but notably Hewlett-Packard and Dell—are being negatively affected.

Market research firms IDC and Gartner earlier this week both found that PC sales in the third quarter fell 8 to 9 percent from the same period in 2011, and according to analysts, things may not brighten until at least early 2013.

"PCs are going through a severe slump," IDC analyst Jay Chou said in a statement. "The industry had already weathered a rough second quarter, and now the third quarter was even worse. A weak global economy as well as questions about PC market saturation and delayed replacement cycles are certainly a factor, but the hard question of what is the 'it' product for PCs remains unanswered. While Ultrabook prices have come down a little, there are still some significant challenges that will greet Windows 8 in the coming quarter."

Intel for more than a year has been pushing its Ultrabook strategy, expecting the ultra-thin and light laptops would help reinvigorate the stagnant PC market. However, pricing has been an issue with Ultrabooks—current systems can run from $800 and up—and sales have not been as strong as some analysts had expected.

Analysts at IHS iSuppli put the current PC market into a historical perspective.

"There was great hope through the first half that 2012 would prove to be a rebound year for the PC market," Craig Stice, senior principal analyst for computer systems at IHS, said in a statement. "Now three-quarters through the year, the usual boost from the back-to-school season appears to be a bust, and both AMD and Intel's third-quarter outlooks appear to be flat to down. Optimism has vanished and turned to doubt, and the industry is now training its sights on 2013 to deliver the hoped-for rebound. All this is setting the PC market up for its first annual decline since the dot-com bust year of 2001."

The much-anticipated release of Windows 8 has been a burden on sales for much of the year, but the impact it will have on the overall market is unclear. While it will find its way into most PCs, it's also optimized for tablets, and OEMs and chip makers are expecting an influx of new tablet and hybrid designs based on the OS. Intel and AMD both recently unveiled new processors aimed specifically at Windows 8-based tablets, and vendors like HP and Dell are hoping to leverage some Windows 8 tablet sales to help offset declining PC revenue.

HP in particular is getting a lot of attention on its PC business. Gartner analysts said that for the first time since late 2006, HP is no longer the world's top PC maker, ceding that title to Lenovo in the third quarter. IDC still had HP in the top spot, but not by much. HP officials disputed Gartner's numbers, arguing that unlike IDC, Gartner doesn't include workstations in its PC figures, an important business segment for HP.

HP executives also are continuing to hear from some analysts that the company should spin off or sell its PC and printer business. HP and Dell are both looking to lessen their reliance on PCs and focus more on their enterprise IT businesses. However, during a meeting with financial analysts earlier this month, HP CEO Meg Whitman said there were no plans for breaking up the company, saying that HP's broad product portfolio—including PCs—is a key strength and differentiator.

She and other executives also noted the largely negative reaction from customers and some analysts in 2011 when her predecessor, Leo Apotheker, suggested the company would get rid of the PC business.

However, some analysts have argued that HP, which has seen profits and revenue decline over the past several quarters, would be better served without PCs, similar to IBM's growth after selling its PC business to Lenovo in 2004. Most recently, UBS analyst Steve Milunovich said this week that separating PCs and printers from its enterprise business would be a significant boost to HP.

"HP, with its fully developed enterprise and consumer businesses, should split up in order to realize greater value," Milunovich wrote. "HP's units are not minnows but rather they are whales packed into the same pond."