Sinking chips

With memory chipmakers floundering in the Far East and the NAND flash business on the skids, these were already lousy days for the semiconductor industry. So today’s news that AMD, the world’s second largest manufacturer of microprocessors, plans to shed 10% of its workforce this year will have many investors hanging their heads in dismay.

It wasn’t altogether a surprise, however. AMD had been through five consecutive quarters of poor earnings reports, having completely lost the initiative it stole from Intel, the market leader by a long shot, back in 2004. Then, AMD was deemed the R&D innovator, and Intel a bumbling copycat. Today, those tables have turned.

Nevertheless, the magnitude of the cutbacks, and the scale of revisions to company forecasts, have left some observers reeling. AMD intends to send 1,600 employees packing before the end of the third quarter, and it now reckons next quarter’s revenues will fall sequentially by 15% to US$1.5bn, instead of the 5–10% previously expected.

The question on everyone’s mind is whether AMD is now suffering at the expense of a rejuvenated Intel, which has emerged from its own cost-cutting exercise in fine fettle, or whether it is simply the victim of the economic turmoil. Various investment banks think it will lose market share in months ahead, which points to the former, and yet the people who buy chips from Intel hardly sound upbeat. Shaun DuBravac, an economist with the Consumer Electronics Association, has previously told the Economist Intelligence Unit that he expects revenue from PC sales in the all-important US market to fall 2% this year.

If both measures apply then Intel might also stumble. It disappointed bankers last quarter, despite posting pretty impressive results, and so everyone will be watching eagerly to see what happens next quarter round. Intel chief executive Paul Otellini is clearly keen to defy the bears. Earlier today he was telling BBC News that he does not expect a looming recession to have much effect on his business, seeing Intel’s exposure to business outside the US as a shield against a US downturn. If nothing else, that might rub a little salt in AMD’s recent wounds.

LTE versus WiMax debate rumbles on

The LTE versus WiMax debate won’t be silenced, but there’s really just one question that needs to be answered. Does LTE offer a more natural evolution path than WiMax for existing 3G players? If it does, WiMax will struggle to ever get the support it needs to become a mass-market offer, even with its time-to-market advantage.

The fact that more 3G operators are coming out of the woodwork and backing LTE suggests there is some commonality, but Intel – the daddy of WiMax – continues to insist LTE is an entirely different technology.

I put this point to Jeanette Fridberg, head of product marketing for chief LTE backer Ericsson, earlier today. Fridberg accepts that LTE cannot re-use 3G radio technology or base stations, and has no advantage over WiMax in that respect (it is, in fact, based on the same air interface as WiMax). But she says LTE can be deployed at 3G base station sites, which account for up to 80% of the capital expenditure.

So what’s to stop an operator from deploying WiMax at 3G sites? Not much, apparently, except that WiMax base stations provide less coverage than LTE and 3G ones. That means a 3G operator rolling out WiMax would have to build more sites to fill the gaps in coverage, which could be not only costly but also inefficient, leaving it with sites that overlap in coverage.

The unresolved question is how much of this coverage advantage stems from LTE’s reliance on FDD technology, as opposed to the TDD used by WiMax (FDD uses two spectrum channels, one for sending information and one for receiving it, while TDD uses a single channel for both). If an FDD version of WiMax would level the playing field then Ericsson will have to be on its toes. Supporters of WiMax say they are working on an FDD system now.

Fibre comes cheap in Hong Kong

One data point really stuck out at this week’s FTTH Council Europe Conference. In a presentation by Alice Wong, the financial controller for Hong Kong’s City Telecom, the figure of €88 was cited as the cost per home of building a fibre network in Hong Kong. That’s a tenth the cost facing most European and US operators.

As Wong explained to perplexed members of her audience, the cost is so low because most of Hong Kong’s residents live in tower blocks, or what the telecoms industry calls ‘multi-dwelling units’. These can be connected with a single fibre and some nifty in-building wiring, which makes installation relatively cheap. Operators in some European countries, on the other hand, are looking at streets full of detached, one-family homes, and a hefty capex bill to boot.

City Telecom claims to have covered 1.4m homes with its network and to have around 650,000 customers using services that cost from €26 per month. A back-of-an-envelope calculation shows that even if all those customers are on the base offer, payback on capex is just over seven months. By contrast, it will take many companies in the Western hemisphere more than seven years to pay off their capex investments.

Geography can be so unfair.

Build it and they might come

An obscure French economist from the eighteenth century would seem unlikely to pop up at a present-day conference about cutting-edge telecoms. But the rather grizzled image of Jean-Baptiste Say, born in Lyon in 1767, made a hard-to-miss appearance at the FTTH Council Europe Conference being held in Paris today.

 

Say hit the big presentation screen at the Palais de Congrès courtesy of Brett Swanson, the senior director of a thinktank called the Centre for Global Innovation. During his keynote speech this morning, and in front of a giant projection of Say’s portrait, Swanson reckoned the Frenchman would have been a major advocate of the investments in high-speed fibre networks that are the topic of this trade show. Known in some circles for his belief that ‘supply creates demand’, Say thought producers and entrepreneurs were the key drivers of any economy and far better at anticipating the needs of a society than the consumers within it.

 

The ‘build it and they will come’ philosophy has a encouraging ring to it, but delegates at this conference probably didn’t need reminding. Many of them are already deploying fibre networks without any firm evidence that a mass market either wants or needs more bandwidth.

 

In some cases, though, early indications are not promising. France Telecom says just 5–10% of customers in areas now served by fibre have immediately taken up the new offer. One wonders what Say would make of that.

Broadband blues

AT&T and Verizon may have provided early  evidence that an economic slump is having a knock-on effect on the telecoms sector. Despite posting pretty stellar results, on the whole, both reported weaker broadband growth than expected. AT&T saw a rise in access line losses during December, and a fall in the rate of broadband adoption. And Verizon, which announced its quarterly results today, witnessed virtually no DSL growth at all, according to bankers at JP Morgan.

 

As a household service, broadband was always going to be vulnerable to a slowdown in the housing market. Luckily for AT&T, only 18% of revenues come from consumer wireline, and other parts of its business seem to be holding up well, including wireless. It seems perfectly reasonable to expect continued growth here. Cell phones have fast become a necessity in developed and emerging markets. The economic setback will probably just accelerate the trend of fixed-mobile substitution, whereby customers ditch their fixed-line phones to save money and rely even more on their mobiles.

 

It’s all bad news for companies dependent on broadband growth for their long-term prosperity. Operators without a wireless business look very exposed in the current climate.

Digital divide: the cost of access

There’s a few strands to the debate about a digital divide, primarily looking at whether people have access to computers or not. But even for those that do, another obstacle awaits: the cost of Internet access.

Tucked away in this article on TreeHugger about bandwidth is a comment about the access costs in Kazakhstan–an astonishing US$3,355 a month for basic DSL broadband (excluding modem). As this article in ars technica explains:

An unlimited dial-up plan costs about €82 ($111) in a country where the average monthly wage is €292 ($399). As for DSL, an unlimited 1.5Mbps connection costs €2,458 ($3,355) a month, and doesn’t even included the required ADSL modem. Want a 6Mbps cable connection? It’ll cost you, to the tune of €16,144 ($22,032) a month. As the OSCE report drily notes, this is more than a thousand times the price of such a connection in Western Europe.

By contrast, there is a promotion by one provider in the UK at the moment, promoting a 2mb broadband package for just £4.50 a month. Digital divide indeed.