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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.
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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.
What to Expect from Intel
While Intel’s overall financial health is better than AMD’s, and it has been able to deliver a steady stream of new products in the past six months, there are some problems, too.
In March, the company announced that it is expecting lower gross margins within its NAND flash memory business, which could put a dent in the bottom line. The overall NAND and DRAM (dynamic RAM) market is suffering due to oversupply.
With AMD’s sales off this quarter, analysts will look to see if OEMs turned to Intel to pick up the slack, especially on the server side, and, in turn, boost the company’s profits. If not, it could show that the overall market for PCs and servers has begun to slow down as the U.S. economy continues its sluggish pace.
In a meeting with analysts in March, Intel executives told their audience that much of the company’s business now comes from overseas, with should lessen its reliance on the U.S. market.
Roger Kay, an analyst with Endpoint Technologies Associates, said some of the recent news out of Taiwan might indicate that the PC market remained fairly stable in the first quarter despite the usually seasonal downturn. This could help Intel meet its quarterly expectations.
One reason the market has remained stable is that there is still a demand for notebooks, which continue to drive the market. If that’s the case, Kay said, he believes that the industry will have to wait until the second quarter or later to really determine whether the PC market is suffering along with the economy.
“Right now, I think there is enough demand that the PC market will hold OK for now,” Kay said. “I do think the computer industry will sustain some aftershock if the other economic shoe drops. I think if that happens, you’ll see it show up more in the second quarter.”
McCarron said he does not believe Intel will detail any new products during its first-quarter disclosures, as the company just held its spring Developer Forum in China earlier in April. However, Intel could discuss its plans to ramp up its line of Atom chips for mobile Internet devices and low-cost notebooks.
“Intel might talk a little more about ‘Silverthorne’ and ‘Diamondville,’ and if they are not in full production right now, I expect them to start ramping those chips up for production very, very soon,” McCarron said. “Intel could also give an update on its overall ‘Penryn’ [45-nanometer] line.”