Notebook PC Weakness Seen Hurting Chipmakers
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The computer notebook segment is showing signs of serious weakening as the global economy slows and the ill effects will start to be felt by chipmakers, analysts said Wednesday.
Notebook manufacturers, distributors and component suppliers in the U.S. and Asia are reporting weak demand and order cancellations. Meanwhile, analysts said, the continued financial turmoil is pushing those who are buying toward low-end notebooks and netbooks, which will ultimately impact chipmakers' margins.
"Clearly the economic slowdown is spreading to notebooks and we're seeing it in two ways," said JoAnne Feeney, a senior chip analyst with FTN Midwest Securities. "One is in lower unit shipments, but also a mixed shift to cheaper units. And that's going to filter down through the semiconductor world."
Notebook sales have become more critical to the health of chipmakers, as they make up a larger and larger portion of PC sales every year.
Feeney now expects fourth-quarter shipments of semiconductors for notebooks to fall 5 percent to 10 percent from the previous quarter, compared with a previous forecast for an increase of 10 percent to 15 percent.
She expects Intel Corp (NASDAQ: INTC), the world's biggest chipmaker, to cut prices to compete with rival Advanced Micro Devices Inc (NYSE: AMD) as demand shifts to lower-cost notebooks.
Robert W. Baird senior analyst Tristan Gerra cut his 2008 earnings forecast for Intel to $1.08 a share from $1.10 and lowered his 2009 outlook to 56 cents from 85 cents, citing weakness in notebooks. The average analyst estimate for 2008 is $1.11 and for 2009 is 86 cents, according to Reuters Estimates.
"Our checks indicate notebook demand trends have further deteriorated since Intel reduced its 4Q guidance," Gerra wrote in a research note.
He said consumer demand appears to be the main weak spot.
ThinkEquity analyst Vijay Rakesh said checks with Taiwanese notebook manufacturers point to a 20 percent to 25 percent fourth quarter sequential decline in notebook shipments.
He also sees more and more customers flocking to sub-$300 netbooks. He calls netbooks a "big double-whammy. They're lower margin, it's like Frankenstein. You created it, you hate it but you cannot kill it because that's what selling."