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.

And in third place…

In the bitterly competitive world of PCs, Taiwan’s Acer is suddenly rising up the ranks. According to Gartner, it has squeaked past Lenovo to claim third place behind Hewlett-Packard and Dell, with more than 8% of the global PC market in the third quarter of 2007. And that’s before the sales of newly-acquired Gateway are figured in.

What’s more, the company told a third quarter investors’ conference in Taipei that Acer could secure a 12% share of the global PC market in 2008, putting it within striking distance of Dell, the number two player. I guess the question for 2008 is whether Dell can get its mojo back before it gets aced.