After Intel's Report: What We Know Now About The Chip Sector
15 Julho 2009 - 1:36PM
Dow Jones News
Intel Corp.'s (INTC) better-than-expected earnings results and
outlook offered the best glimpse yet into how the chip giant and
sector will fare through the rest of 2009.
In short, the Silicon Valley company said consumers continue to
spend on tech products, and Asia is showing some relative strength
helped by China's stimulus. Meanwhile, chip inventory levels are
returning to more stable levels as customary demand patterns
re-emerge.
But not all is good. Business spending is still down, and
questions remain about broader economic weakness and whether it
could derail a recovery later this year.
So, in review, here's what we've learned and will be monitoring
as other chip companies report their quarterly results:
Consumers are spending on tech, but businesses still aren't
Intel said notebook chip shipments saw a rebound in the second
quarter, led by continued buying by consumers even as confidence in
the economy remains low and unemployment inches higher. Upbeat
third-quarter guidance from Intel suggests customers will still
grab PCs during the back-to-school season, but some have started to
worry about the fourth quarter and the holidays.
The risk, analysts say, is that strong consumer demand - while
the economy continues to sputter - could make chip makers
vulnerable to a quick belt-tightening, especially as unemployment
rises.
"An eventual slowdown in the consumer PC segment could act as an
offset even if enterprise PC trends pick up going forward," Robert
W. Baird analyst Tristan Gerra said.
A pullback in consumer spending during the next two quarters
could return the chip market to a position similar to last year.
Specifically, chips sitting on manufacturers' shelves, while chip
customers stop buying to deal with overstocked inventories.
Meanwhile, business customers aren't buying much more than
servers, and Intel expects continued weakness in this segment
through the third-quarter.
Of course, as businesses try to eke out few extra months, or
years, from aging desktop and notebook computers, there's likely a
buildup in demand occurring, Intel said. The introduction of
Microsoft Corp.'s (MSFT) Windows 7 this fall could push more
customers to start buying, though it's more likely to happen next
year.
Chip inventories in the supply chain are returning to customary levels
Intel inventories dropped by more than $900 million over the
last two quarters, suggesting a correction has occurred in the
supply chain.
This development adds evidence to the company's assertion in
April that the traditional seasonal pattern - where chip sales pick
up in the third and fourth quarters as tech companies prepare for
higher sales due to back-to-school and holiday shopping - would
resume in 2009.
Additionally, Baird's Gerra said chip inventory levels still
haven't caught up with end-demand, meaning chip sales could
continue to outpace sales of PCs.
The China stimulus program is working and should help other chip makers
The Asia-Pacific region provided solid results, the chip
bellwether said, helped by the China stimulus package.
ThinkEquity analyst Vijay Rakesh said that could be good news
for analog chip makers, such as ON Semiconductor Corp. (ONNN),
Diodes Inc. (DIOD), Monolithic Power Systems Inc. (MPWR) and Maxim
Integrated Products Inc. (MXIM), all of which generate a
significant portion of their revenues in China.
"China put in place a $464 billion stimulus program with a key
focus on infrastructure, consumer electronics, TVs, automotive,
with orders continuing to be strong. We believe that in our
coverage universe analog players...are all positioned well," Rakesh
said.
Intel's best-in-class performance raises the bar
Intel shares recently rose 7.5% to $18.09, leading a rally in
the Philadelphia Semiconductor Index, up 3.9% to 280.24. With
Intel's blockbuster quarter, the bar is now raised for other chip
makers, especially PC chip rival Advanced Micro Devices Inc. (AMD),
up 9% Wednesday.
As chip makers follow Intel in reporting second-quarter results
- Texas Instruments Inc. (TXN) is the next big gun, on Monday -
investors are expecting companies to post numbers near the high end
of estimates. Any stumble could mean a quick reversal in stock
prices.
-By Jerry A. DiColo, Dow Jones Newswires; 212-416-2155;
jerry.dicolo@dowjones.com