More Indicators From Asia Hint at Pain for Intel

Thursday saw AMD reporting dire news for the coming quarter, Friday sees Intel facing severe prognostications from two research firms, hinting at major reductions in the workforce and Intel posting some severe losses.

FBR Capital Markets issued a report stating that “industry checks” indicated Intel would announce a large workforce reduction, potentially as high as 10 percent. Intel has been on a cost-cutting tear for almost two years, reducing headcount from more than 100,000 to the most recent figure of 85,000.

FBR expects the cuts to be close to the 6-7 percent range, which would be between 5,000 and 6,000 employees total and cut bonuses, which would save Intel $1 billion annually. However, FBR’s guidance on FY’09 for Intel is still quite good, certainly better than the automobile makers. It’s lowering its 2009 revenue estimate from $35.1 billion to $34.3 billon and 2009 EPS estimate from $0.95 to $0.85.

Perhaps more significant in the FBR note is an entry that states Asian distributors are converting inventories to cash due to the deep credit freeze. “It has recently become clear that Asian distributors are depleting chip inventories below sustainable levels in order to hoard cash, as many Asian banks are not actively lending right now … Given that many chip firms are seeing peak to trough revenue compression of 20%-30% through 1Q09, we think it is possible chip firms could be setting up for a 2Q or 3Q revenue snap-back as customers replenish inventories.”

That’s just bad news all around for every semiconductor maker, because it means the Asia system and component builders won’t be placing large scale orders until the middle of next year, assuming sales pick up.

Meanwhile, R.W. Baird issued its own report on Wednesday saying 4Q08 and 1Q09 revenue would be notably down, with November notebook revenues down 15 percent, according to statistics from Asian makers, with another 20 percent negative variance expected for December. Rebound expectations for notebook units are now pushed out to 3Q09.

On the plus side, inventories still appear lean in the channel, Intel is not expected to lose market share in 2009 in notebooks and will be flat in 09, but netbook units could nearly double to 20 million units in 2009.
Industry participants do not expect a rebound in notebook orders until 3Q09.

Intel spokesman Chuck Mulloy declined to comment on the Baird report, as he had not seen it, but he had plenty to say about FBR. “That ranks up there with rank speculation and to a certain extent irresponsible speculation, because they released it on the same day as unemployment numbers, and we just did our pre-update a week and a half ago,” he told

No one from FBR research was available to elaborate on the report.

Mulloy said Intel does not comment on speculation and does not plan on making any pre-announcements between now and when it reports fourth quarter numbers in January, as the company is in its quiet period.

Nathan Brookwood, research fellow with Insight 64, felt at least some of the speculation on the report is very credible. “There are still big issues in terms of consumer credit and commercial credit, it’s a real problem,” he said. “They [PC builders] are not going to buy much until they have cash and see there’s some demand out there.”

As to the Baird predictions, he was more leery. “It all depends on whether people start buying again on the end user level,” said Brookwood. “Anybody who is willing to climb out on a limb and make a forecast on the second half of 2009, given what we know today, is either an idiot or crazy. I think more than six months visibility in any of this is just impossible.”

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