The two fiercest rivals in the semiconductor market now appear to have something they can both agree upon; the forecasting environment just got murkier.
There are not yet signs problems in the wobbly global economy and the troubled financial sector hurt technology companies' financial results in the third quarter but both Intel Corp., the world's top chip maker by revenue, and its microprocessor rival Advanced Micro Devices Inc. say they have no clear idea how the fourth quarter will shape up due to uncertainties in the macroeconomic environment.
And, don't even ask them about 2009, whether the seasonally weaker first half or the stronger second half, which typically gets a boost from back-to-school sales following the long summer holiday and shoppers during the end-of-year holiday season.
"Who knows what 2009 is going to be?" asked Paul Otellini, president and CEO at Intel during a conference call with analysts after the company announced its third quarter results on Tuesday (Oct. 14).
Executives at AMD, which posted stronger than expected third quarter results on Thursday (Oct. 16) echoed the same sentiment. "We are not forecasting a shrink in business from the third quarter to the fourth quarter but it is pretty murky," said Dirk Meyer, president and CEO of AMD.
The current market uncertainty poses challenges not just for Intel and AMD but also the entire high-tech market, stretching deeper into the industry supply chain as companies grapple with such budgetary issues as sales and marketing costs as well as R & D and capital expense requirements.
Additionally, lack of adequate visibility into end-market demand can negatively impact how companies assess such critical operational functions like factory capacity utilization and optimal inventory level, an area where the high-tech industry has repeatedly tripped up during previous economic recessions or slow-growth period.
"In the third quarter we had to start making the signals for the fourth quarter with the anticipation that the quarter was going to be strong [but] we have backed off a little bit in the manufacturing environment to manage inventory in a marketplace that looks a little turbulent," said Bob Rivet, chief financial officer at AMD.
"We probably built a little more inventory in the third quarter than a flattish environment would tell you to do, but had to make that call in the summertime," he added.
Intel, too started out at the beginning of the fourth quarter expecting seasonally robust sales but even though actual demand remain strong, the company is dialing back due to what CFO Stacy Smith described as a "high degree of uncertainty around fourth quarter demand."
The skittishness is reflected in Intel's fourth quarter revenue forecast, which it expects would be between $10.1 billion and $10.9 billion, the widest range in the company's history. The company, Smith said, is "not yet going to provide a forecast for 2009."
"We need to see the impact of what's roiling through the credit markets and that's what is giving us the higher range of potential outcomes for revenue in the fourth quarter and we've got to watch that and then we'll have a better sense for 2009," he added.
The cloudiness is also impacting Intel's capital expense outlook for 2009. Analysts pressed the company for an assessment of how much it expects to spend in 2009 but executives at the chipmaker would not budge, insisting they could only confirm plans to proceed with 32-nanometer process technology.
"We want to see how the fourth quarter plays out and I think that will give us a much better indication of 2009 from a unit growth standpoint and that will obviously have implications on our capital spending," Smith said. "The hints I've given so far is that we still plan to do 32-nanometer as fast as we possibly can."