June 2001 Industry Update

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PC Marketplace

What a difference a year makes. In the first half of last year, the industry was forecasting double digit growth in semiconductors, after a strong 1999, and was ignoring warning signs that PC sales were slowing. Even the perennial money losing DRAM manufacturers were upbeat. Then, the bottom fell out last Xmas and the industry has been severely shaken. Some analysts are claiming that 2001 will be one of the worst years that the semiconductor industry has ever seen, and the PC market is looking just as gloomy.

What is interesting is that while the large manufacturers are suffering greatly, the smaller niche players seem to be doing reasonably well by focusing on specialty needs, allowing them to make greater margins due to less competition. These are markets that Intel, ASUS, Dell, etc. don’t view as worthwhile because they are relatively small. However, one market that has gained the attention of everyone is the workstation/server market. It seems that everyone is recognizing that there are still good profits to be made here, and Intel seems to be going after this market with a vengeance, as will be discussed later.

Though several larger motherboard manufacturers claimed, in response to my last survey at the end of April, that they were seeing some increased shipments, it appears that May turned out to be pretty dismal for the top tier companies. The four largest Taiwanese motherboard makers normally ship something on the order of 3 million motherboards per month. In May, total shipments for these four manufacturers is reported to have been under 1 million, creating a great deal of concern in the industry. It is not clear at this time whether any particular platform was exempt, however unofficial reports indicate that these manufacturers were holding on to a lot of inventory at the end of the month, including Socket A boards. On the other hand, several of the Tier 1 manufacturers indicated that Pentium 4 shipments recently picked up fairly significantly.

There is a lot of speculation about why the PC market is so slow, but I am wondering if at least part of the problem is uncertainty by the larger volume purchasers (i.e., business) with regards to stability and reliability of products due to short product cycles and rapid-fire releases. I am reminded of the mid-1990’s, just prior to the release of the Pentium platform when there was a lot of publicity about component incompatibilities. Intel solved that problem by offering the whole package (chipset, motherboard and processor), and eventually dominated the market. Perhaps this is a hint for those wanting to remain competitive over the next few years, and Intel seems to be once again focusing on the keyword ‘stable’ in their marketing material (i.e., Corporate Stable Platform is a phrase that has been mentioned to me).

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