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'Stop, we don't want it'

Stephen Baker, vice president of research with NPD Group, said things actually started to go bad in August. "In October, retailers told manufacturers 'stop we don't want it'," he told InternetNews.com. "So as that cascaded through the month of October, the retailers stopped more and more orders and that pushes inventory back into the supply chain."

One reason nVidia was hit so hard is because its quarters are off by a month. Whereas most companies ended their quarter at the end of September, nVidia's ended in October. September and even October were good for a while, which is why Intel and AMD's drops weren't so precipitous.

But then in late October, "it went off a cliff," as Hara put it. So nVidia's fourth quarter of November/December 2008 and January 2009 were all during the worst of the situation, where distributors let product bleed out and stopped their orders.

Distributors Ingram Micro, Tech Data and Arrow were not available for comment.

Signs of a comeback?

Hara said only now are distributors approaching a one-to-one ratio of selling out and restocking. nVidia's guidance for the first quarter is that it will be flat to slightly up from the same quarter last year, indicating that product is once again rolling.

There's at lease some evidence of that from the government. The Commerce Department on Thursday reported January sales inched up one percent over the prior month, reversing six months of consecutive declines.

While the trucks are starting to roll for suppliers, the ripple effect back through the food chain continues. When chip makers stopped selling parts, they stopped placing orders. Taiwan chip manufacturers like TSMC are taking it on the chin now, reducing capacity and cutting back on work by 20 to 30 percent or more, according to DigiTimes, a Taipei-based tech publication.

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Most recently, DigiTimes reported that notebook shipments in February are expected to rise about 9.7 percent over January.

Hara has been through contractions before. He was with nVidia during the Dot-Bomb implosion earlier this decade. But the speed at which things fell apart last year was what shocked him. Instead of the industry going along blithely for several months like it did in 2000-2001 before reality finally sank in, everything stopped dead almost immediately in 2008.

"It was almost day by day, things were getting worse," he said. "Whatever you saw one week was different the next. I've never seen things change that fast before. It was alarming. I think reality set in and it cascaded."

Bring on Windows 7

Sales have slowed but haven't exactly taken off yet, not with one percent growth in one month after a year of contraction. One thing that might get things moving is Microsoft's release of Windows 7. The company continues to maintain a Q1 2010 release date, but with the beta in very good shape and the company openly discussing a release candidate, the June 2009 ship date seems more and more likely.

What could possibly happen, then, is that Microsoft would be in the rare spot of spurring sales not because the new operating system requires new hardware to run it, but because people actually want to get a Windows 7 machine. Hara thinks it might prove a boon for all hardware vendors, if he is any example. He has three aging Windows XP machines that need replacing.

"It's going to give people a reason to look," he said. "Using myself, the timing works out well for me. If you were holding off and didn't want to go to Vista, this could be the reason to make the change. I believe there are a lot of people on the fence in the same position as me, looking for a reason to upgrade. If people take that as the opportunity to refresh their hardware, then that will be good for everyone."

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