AMD gives us a Tech reality check

12 Comments

If you are paying too much attention to the blogger code of ethics debate, then you are missing what could turn out to be technology industry’s very own blizzard of 2007. The demand for devices – from PCs to wireless phones to everything is heading south – fast. And it could chill the technology industry for at least first half of the year.

Earlier today, Advanced Micro Devices (AMD) announced that it is cutting its revenue forecasts, for the first quarter of 2007. “Revenues declined sharply quarter-over-quarter … due to lower overall average selling prices and significantly lower unit sales, especially in the resale channel,” AMD said. AMD will cut costs, and slowdown hiring. AMD pre- announcement can’t be dismissed lightly. You can expect more companies will make such statements during this earning season, underscoring lack of demand.

According to Cowen & Company chief technology strategist Arnie Berman, the demand has been lagging in most high-end volume markets – PC’s, wireless handsets and most categories of consumer electronics. The corporate spending is also proving to be sub-par.

What about the start-ups? How are they impacted? Our good buddy Pip Coburn of Coburn Ventures emailed us a few minutes ago, and said, “None of this is surprising and I don’t think start ups would be surprised or frankly care at all.”

Erring on the side of caution, I think the  web-based companies, especially those reliant on advertising – that everyone from Yahoo and as small as our lowly site, could feel the impact of this demand slowdown. The retail chains like Best Buy and Circuit City could be impacted as well. The good news is that this is market self correcting itself, and instead of a Bust 2.0, we might have a slow correction in the technology ecosystem.

12 Comments

Kevin Krewell

Om,

I agree, we’ll see what Intel has to say and what the market research numbers show in a couple of weeks.

The most important thing AMD can do is get the Barcelona quad-core server processor shipped to improve server margins and shift all its products to 65nm to reduce costs.

Intel is also getting hurt by lower ASPs, but unit numbers for Intel look healthier. Expect these two arch rivals to be trading punches for some time to come. Both companies have excellent products, and competive roadmaps. This is going to be a slugfest like an Ali-Frazier fight.

Mark

Om –

Interesting thoughts. About the marketing, my experience has been that when there’s a downturn in the market, there’s an increase in spending on targeted and effective marketing. If companies like AMD want to reach tech influencers, they’ll be more likely to spend their marketing dollars on sites like yours and less likely to buy advertising in the broader traditional media.

Traditional media advertising will be hurt more than anyone.

Om Malik

Charlie,

You have a good point – Vista was supposed to be warm front that didn’t really show up. I am sure we will see that in the coming days when Microsoft announces its earnings.

Om Malik

Kevin,

You might be right, but it is good to watch the commentary from other chip companies this earnings season because that is going to give a good picture of how the market is going to shake out.

The most important one will be Texas Instruments, which is a proxy on Nokia and basically if things are bad there – and I suspect they are – TI will say so. Big day will be April 23rd, when TI reports.

Yuvamani

AMD’s competitive position with intel has suffered with
1) The increasing popularity of notebooks vis a vis desktops. AMD has great desktop chips but not so great notebook product line.
2) Intel becoming competitive in servers with good perf per watt …

If Intel gives a similiar warning Id be scared, Otherwise its like Yahoo warnings which are due to Google and not a sign of the market

Charlie Sierra

The question has to be can this news be used as a proxy for Vista’s impact or lack thereof?

Of even worse, what if pre-installed Vista is stalling the market? A market that really does want it or the headaches involved in removing it, just yet.

Brian Laks

Maybe the pace of device introduction, or possibly the smash-you-in-the-face saturation of every industry nook and cranny, is hurting demand. Why buy today, when tomorrow is smaller, faster and better? I wonder if we will ever hit a point of “immediate obsolescence”, where just by releasing a product it has already become antique, and the real winners will be the perpetual betas that never commit to saying they’re “done” with innovation. Will there ever be a time when the Holy Device stops changing (hardware-wise) and when it will be all software that provides functionality differentiation? Software which updates wirelessly/automatically/anywhere-ly. I’m tired of waiting for my magic wand.

Webomatica

Good to keep an eye on this stuff. I would point out one company doesn’t make a trend. I’d watch the obvious companies, YHOO, MSFT, AAPL, GOOG, HP and see what they make of 2007. I recall a few quarters ago YHOO blamed their faltering numbers on a slowdown that never materialized – turned out they had their own problems.

Kevin Krewell

The AMD story has more to do with its competitive position with Intel than on overall indicator of the economy. AMD is still digesting the acquisition of the ATI graphics and chipset businesses and the synergies AMD was looking for have yet to develop.

Q1 and Q2 are historically slow quarters in the PC business. There had been some hope that Vista would spur some fresh demand, but that does not seem to have happened. AMD also hitched up with Dell just as Dell was hitting the rocks.

Sridhar Vembu

Om,
Thanks for the reality check. There are economic headwinds ahead, which, while not originating in the tech industry this time (unlike the 2001 bust), will still have an impact on the industry. It is great to see you on top of this.

Sridhar

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