Hardware Sales Trends Headed in Wrong Direction

Projections for hardware sales have been plummeting for some time, but Thursday’s warnings from AMD and hardware makers put hard and rather significant numbers behind the warnings.

AMD warned that fourth-quarter revenue would be off by as much as 25 percent from original projections of $1.52 billion, which would be around $1.19 billion. AMD (NYSE: AMD) has set a break even point of about $1.5 billion, so this squashes any potential for profitability this quarter.

Despite the dire warning, AMD didn’t suffer terribly for it, losing 12 cents, or 5.45 percent, to $2.08. However, it was an overall bad day for the market, which lost 215.45 points, or 2.51 percent, to 8,376.24.

AMD will report fourth quarter 2008 results after market close on January 22, 2009, with a conference call to be held that day to discuss fourth quarter results.

FBR Capital Research said the global macroeconomic contraction is causing demand deterioration, and it is particularly bad for chip suppliers because falling demand is being compounded by supply chain inventory reductions, particularly among distributors.

The fact that AMD doesn’t have fresh product isn’t helping. It has announced some new products and has a bunch on tap for CES in January and later on in 2009 but right now, its products are fairly long in the tooth.

“We think AMD’s relatively stale product offering of desktop and mobile chips (no 45nm yet) means its business is faring worse than Intel’s business as Intel takes share,” said FBR’s report. “The magnitude of AMD’s miss obviously raises the risk that Intel (Market Perform) will also preannounce revenues worse than its already revised range of -9% to -15% QOQ.”

The speculation about Intel could well be right. The Taiwanese tech publication DigiTimes reports that several top tier PC vendors are expected to reduce their PC order volumes in the first quarter of 2009 by around 50 percent compared to the same period in the previous year.

Citing sources at component makers, DigiTimes reported HP is planning to cut orders by around 50 percent compared to Q1 2008, Dell around 50 to 60 percent and Acer and Asustek by about 40 to 50 percent each. The first quarter is always a slow quarter but that means a drop from the most recent quarter. It still sees year over year growth, not a reduction by half.

The one bright spot: netbooks and LED-based notebooks, such as Apple’s new MacBooks, are still seeing a surge of growth.

The overall plunge though, isn’t a surprise, said Nathan Brookwood, research fellow with Insight 64. “What’s going on is vendors were building product for end of year sale and they didn’t realize until it was too late that there wasn’t going to be any end of year sales,” he told InternetNews.com. “So that caused a lot of people to cut back so they can sell in Q1 what they didn’t sell in Q4.”

While the problems of the economy are not directly related to the tech implosion earlier this decade, the tech sector is still going to suffer for it for two reasons, Brookwood noted.

“This is the first time, according for the Organization of Economic Co-Operation and Development that you have the U.S., Europe and Asia all simultaneously in down economies,” he said.

“Basically the whole world is all going downhill fast because a few people got mortgages they couldn’t afford, which screwed up the subprime market. That in turn screwed up credit markets, which meant people couldn’t get working capital or loans and the U.S. economy runs on credit. When there is no credit, there is no economy,” he added.

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