Intel Warns! Is Something Wrong in Techland?

fallingstocks

t’s happy days in startup land, especially for those just getting started. Angel investors line up at industry gatherings to take flyers from young companies and their equally young founders. However, in stark contrast to the ebullience of early-stage ecosystem is the dreary reality facing some of the large technology companies.

Intel Takes a Dive

Many of the large tech companies, forced to confront the bleak reality of economy beyond blogs and Silicon Valley, are finding going very tough, much like rest of the planet. Today, Intel Corp., the world’s largest chip company, announced its sales for the third quarter — ending Sept. 30, 2010 — will come in shy of its previous forecasts of between $11.2 and $12 billion dollars. The new forecast is $11 billion, plus or minus $200 million.

Why? Because consumers aren’t buying as many machines! I’m betting many people are opting for cheaper netbooks instead of paying for more costly notebooks. This isn’t a single-quarter problem, and the malaise is going to extend to the fourth quarter of 2010 as well, according to Rodman & Renshaw analyst Ashok Kumar. He blamed “weak domestic back-to-school season” and “lackluster demand from Europe.”

In a note to his clients yesterday, Kumar said that shipments of laptops from big manufacturers in Taiwan and China had been decelerating.  He feels this trend is going to impact the entire ecosystem, from memory chip makers to disk drive makers to companies churning out displays and drives.  He’s also of the belief that the lower cost ARM-powered tablets are only going to cannibalize notebook sales. While we’re big believers in the smartphone boom, one can’t hide from the fact that PC ecosystem is still one of the biggest drivers of the tech economy.

Weak Wireless

The PC ecosystem isn’t the only one hurting. The wireless hardware manufacturers — folks who provide equipment for cellphone networks — are having a tough time as well. According to Stéphane Téral, Infonetics Research’s principal analyst for mobile, the spending freeze in India and China on mobile infrastructure is having an impact on large equipment makers such as Ericsson.

“It’s been a tough year so far for the mobile infrastructure market, mainly due to the absence of spending in China and India. Last year, China spent like mad on its massive 3G rollout. This year, India was supposed to pick up some of the slack, but due to a combination of bans on Chinese vendors and a delayed spectrum auction, the spending virtually stopped in 2010. In fact, our analysis of capital expenditures by the three Chinese service providers in the first half of 2010 indicates that they have spent only 12% of their planned 3G budgets! The postponements in GSM upgrades and modernization will need to be addressed soon, and we are likely to see some interesting pick-up in both 3G in China and 2G in India in the second half of 2010.”

According to Infonetics data, the overall mobile infrastructure market was down 0.9 percent in the second quarter of 2010 from the first quarter of 2010, from $8.8 billion to $8.7 billion. This lack of growth isn’t good for the likes of Alcatel-Lucent (a ALU), Nokia, Siemens Networks and Ericsson who are already competing with Huawei and ZTE, the two low-cost Chinese giants.

Cisco’s Mixed Signals

Another technology bellwether is Cisco Systems, and a few days ago, the San Jose, Calif.-based networking giant painted a less than optimistic view of the future. After reporting fiscal fourth quarter 2010 revenues below expectations, the company forecasted lower demand.

Cisco told Wall Street analysts that it was getting mixed signals from its customers on demand and was rethinking the future, taking a cue from the U.S. Federal Reserve’s comments about lower U.S. gross domestic product.

Recap

When I look at these early warnings, I’m often conflicted; on one hand, it seems that Silicon Valley isn’t facing up to the harsh reality of the economy at large. On the other hand, I wonder if we’re cycling out from the past to a whole new tech landscape, which is less dependent on these giants and more on these early stage companies.

Thoughts?

Related content from GigaOM Pro (sub req’d): Infrastructure Overview, Q2 2010

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