Analysts: PC chip recovery isn't here just yet

The two largest makers of PC microprocessors in the U.S. inched up revenue expectations for the fourth quarter on Thursday, celebrating a return to normal PC buying trends. But industry analysts aren't suggesting semiconductor manufacturers break out the champagne just yet.

Intel now expects revenue of between US$6.7 billion and $6.9 billion for the three months ending Dec. 29, up from earlier expectations of between $6.2 billion and $6.8 billion. Meanwhile, Advanced Micro Devices Inc. (AMD) said it expects revenue to be up 10 percent or more for the current quarter -- its previous high-end expectation was for a 10 percent increase.

However, analysts aren't ready to bet that the tough times for chip makers are over. "Things are what they said, which is just 'better than expected'," said Dean McCarron, an analyst with Scottsdale, Arizona-based Mercury Research Inc. "What it's really saying is that we had a pessimistic quarter that people did their forecasts out of."

McCarron said he thinks the market has seen its lowest point, but recovery isn't just around the corner. "I still haven't changed my opinion that recovery won't happen until the second half of next year," he said. "I don't think this is necessarily evidence of a turnaround, but I don't think there's any question that the (PC chip) market hit bottom some time between the second and third quarter."

Traditionally, the fourth quarter has been driven by consumer buying more than by sales to businesses. Microsoft Corp. released Windows XP during the fourth quarter, and its appearance on the horizon probably pushed consumer purchases back to later in the year, said Nathan Brookwood, principal analyst with Insight 64, in Saratoga, California.

"Certainly, folks earlier in the year, if they were paying attention, may have deferred purchases because they knew (Windows XP) was coming," he said.

Windows XP may not have spurred more consumers to buy PCs, Mercury Research's McCarron said, but users who were planning on buying a PC may have pushed off their purchase until after the operating system's October release. In addition, most people who wanted Windows XP probably bought it on a new PC rather than upgrading an old machine, he said.

In addition, faster PC chips may be causing another wave of PC upgrades, he said. "Finally, we're at the point where people who bought computers in 1999 are beginning to feel that their machines are outdated," he said. "If you bought a machine (then), odds are it was a 500MHz machine; now people are talking about 1.5 (GHz) to 2GHz machines," he said.

Even if the current quarter does mark a return to traditional buying trends, chip sales are likely to take a dip in the first quarter of 2002, analysts said.

"Generally, following a strong fourth quarter, the first quarter falls off," Brookwood said. "But there was some suggestion from Intel yesterday that because of some shortages, there may be some backlog (of orders) on the books," he said. "That would be a good boost for the first quarter."

Kevin Krewell, a senior analyst with MicroDesign Resources Inc., agreed. "There have been exceptions when the year before was a little soft, but in this case I expect (the first quarter) to be down a little from the fourth quarter of this year," he said.

Nevertheless, most analysts agreed that the microprocessor industry -- perhaps even the PC industry as a whole -- is probably at the beginning of a gradual upswing.

"I suspect that it's just beginning now. ... Barring something that drives (PC memory) prices up, people will find PC prices very attractive for the next 12 months," Brookwood said.

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Douglas F. Gray

Computerworld
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