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Like Consumer Spending, Chip Sales Slump

Two pieces of chip news indicate the recession is indeed going to put a damper on the consumer electronics industry. In its quarterly filing with the SEC today, Intel (s INTC) explained that the uncertain economic climate means its revenue guidance for the fourth quarter, even at the high end, would be “an increase that is at the lower end of our seasonal trends.” And yesterday two foundries reported that semiconductor firms were cutting back on orders.

Intel plans to update investors on Dec. 4 after a few weeks of sales, but so far the chipmaker is seeing its customers worry about their own inventory levels leading into an economic downturn, which means they could stop ordering more chips from Intel. The world’s largest chip firm may also face a crunch as its suppliers are squeezed. As it notes, “There could be a number of follow-on effects from the credit crisis on Intel’s business, including insolvency of key suppliers resulting in product delays.”

On the other side of the globe, Taiwan Semiconductor Manufacturing Co., the Taiwanese foundry, said in an earnings call Thursday that orders for PC chips were off by 20 percent for the fourth quarter. Chip suppliers are adjusting their orders so they won’t have as much inventory on the books if their customers can’t sell the end devices those semiconductors go into. This is bad news for foundries, who are contract manufactures for the chip companies, but is also a worrisome indication that electronics makers see consumers pulling back. Chipmakers are the canary in the coal mine of consumer demand in today’s gadget-infused society, so lower sales there mean fewer sales further up the device chain.

5 Responses to “Like Consumer Spending, Chip Sales Slump”

  1. Due to the economic trends today, a lot of semiconductor companies are getting slow demands from large computer and electronic consumer companies .The people tend to lessen the budget allocation for electronic gadgets and tools to compensate for the high prices of the basic commodities. All in all these events affect the large industry of electronics.

  2. As the “canaries in the coal mine,” it’s important that chip makers – large and small – know what’s coming and make the right buying/selling/forecasting adjustments during the downturn. For any company, but in particular for those smaller than Intel and Taiwan Semiconductor, predicting how the economic downturn will affect business goes beyond taking blunt actions, like cutting all production by 20%. Chip manufacturers need to make different adjustments by region, product line or industry to ensure production accurately meets demand at a detailed level – not cutting one industry short just because overall sales are expected to decline. From my experience, I’d say that for this reason, companies need detailed timely forecast of market demand from the people interacting with customers, a bottom’s up view of demand, especially as we all look to those industry “canaries.”