December 2000 Industry Update

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Market Conditions

In the October Update, I spoke about poor sales from a number of manufacturers, which was met with some disbelief. Since that time, it has become very apparent that the market has definitely not been as good as expected, with some vendors and manufacturers getting hit harder than others.

DRAM pricing is generally an early indication that things are slowing down (or at least not growing as rapidly), and right now is no exception. Two months ago, 64Mb SDRAM chips were priced close to $6.00 on the spot market, and now they are hovering just above $3.00, while 128Mb parts have dropped from about $13.00 two months ago to about $6.50 today. Of course, with big names such as Gateway, HP and Apple recently announcing slow sales, this is to be expected.

Intel and AMD both warned that their quarter will be worse than expected, and Intel declined to speculate on how Q1 and Q2 of next year will turn out. Even the mobile market, which was looking fine a few months ago, was mentioned as a poor performer for Intel. Several Taiwanese motherboard manufacturers have experienced layoffs recently, as they struggle to compete in an already difficult market, with some of them currently engaged in some ‘internal adjustments’ in order to survive. Some are looking towards IA devices, while others are moving towards the high-end solutions.

The question, of course, is whether this is a permanent slowdown, or simply an anomaly. There are advocates for both arguments, with blame being spread equally to the economy, the stock market, the election, lack of any recent ‘killer apps’ and/or the end of the PC era. In the October Update, I suggested that AMD would guide expectations for unit shipments of Athlon processors down from 7.2M to 5.5M, which some responded to me with a bit of a hint that I was perhaps a part of the Intel propaganda machine. Though AMD actually did not state this specifically, it appears now that they should have, since they are now indicating about 7M units in total for the quarter vs. the 8 to 9 million they had suggested. Of course, their original target was 25 million processors for the year – and it appears they will exceed that by about a million.

I also suggested in October that at least part of the reason for the apparent slowdown in PC sales might be due to market confusion over what technology would be dominant in the next few years. Based upon feedback from visitors and from manufacturers, I believe that this may very well be a factor. Elaborating on this a bit, it seems that the argument could be made that the virtual monopoly of Microsoft and Intel over the past few years has stifled innovation in the industry, which has now culminated in a sort of ‘malaise’ on the part of the consumer. Faster processors bring very little in terms of performance gain, due to limitations in the memory subsystem while few truly compelling applications have appeared in the past few years.

Looking ahead to next year, it would appear that Intel’s hold on the industry is at least loosening a bit due to the competition from AMD and VIA. This, in turn, has resulted in some previously ‘dead’ technologies coming to life again, including DDR and firewire. Instead of a world where Intel determines what the next ‘cool’ applications will be, the marketplace will instead be able to decide – which should once again result in quite a bit of consumer interest. Healthy competition is not only good for the consumer, but it might also be argued that it is good for business as well.

On the positive side of current news, the high-end desktop, workstation and server markets seem to be holding up better than the low end. The vendors I spoke with who sell into this market are not feeling the pain that some others have expressed. Also, the manufacturers and vendors who have readily switched over to the Socket A platform also seem to be staying above water, while those who have stayed mostly with Intel specific solutions seem to be suffering much more.

In checking with a few resellers/integrators, several have indicated that while late 1998 and all of 1999 were very good compared to previous years, the indication is that this year has pretty much fallen in line with the normal long-term growth. For these vendors, it has not been a horrible year, just not a stellar one. A few others have indicated that this is a pretty dismal year, particularly the past few weeks where they normally get a marked increase in sales. Almost all have indicated that this quarter is flat to down from the last quarter.

While much of the news does sound somewhat grim, there seem to be some bright spots, with many manufacturers and vendors reporting a great deal of pent-up interest in DDR solutions. Though many will likely wait to see if there are still hidden issues to resolve, there seems to be a fairly sizable number of those willing to deal with possible problems to be the first onto the new platform.

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