These are not ordinary times. Not for Advanced Micro Devices, which reports earnings on Thursday. Nor for Intel.
For starters, AMD said last week that that it would slash its workforce by 9 percent and institute temporary salary cuts. This comes as the company enters the final stages of bifurcating
into the AMD the
product company, which designs chips, and The Foundry Company, which the manufactures them. A measure taken to stave off collapse. (There are still a few more steps that have to be taken before the split is sanctioned by all entities involved.) Even presuming the split is completed according to plan, AMD, like Intel, has to face a difficult first quarter and possibly troubled second quarter. These two quarters are historically weak to begin with. Add the unusually negative macroeconomic factors on top of that and "recovery isn't looking like a first half kind of thing" for AMD, according to an industry source who follows the company and expects AMD to paint a less than rosy picture. "This doesn't look like one of your normal semiconductor cycles, where you pop out of it very quickly and very aggressively, and overtake any dips," said the person. And speaking of dips, Taiwan Semiconductor Manufacturing Company, the largest contract chip manufacturer and major industry bellwether, said on January 9 that December net sales on a consolidated basis were off 30.1 percent from November 2008 and off a whopping 51.9 percent (54.8 percent on an unconsolidated basis) from December 2007. TSMC reports fourth quarter results on Thursday too. The situation for Intel--which reported a 90 percent dive in year-to-year fourth-quarter profits last week--isn't that different.
Bloomberg is reporting that chief executive officer Paul Otellini told employees last week in an internal memo that a first quarter loss is possible after 87 quarters of profit. But Intel said as much publicly in its earnings conference call last week, refusing to give official guidance for the first quarter due to heightened uncertainty and then bringing up a possible scenario in which things don't improve as expected. Chief financial officer Stacy Smith put it this way during the conference call: because of the dramatic drop-off in demand from customers (what Intel calls "the supply chain") in the fourth quarter, the chipmaker is "aggressively" reducing factory utilization in the first quarter. "The expectation is that we can start to reload the factories a bit in Q2 from where they are in Q1," he said. But he then addressed a "hypothetical" situation where conditions don't improve as expected. In this case, Smith said Intel would slow the introduction of next-generation 32-nanometer manufacturing process technology. (Currently Intel chips are based on 45-nanometer technology.) "Over time if our view of demand is wrong and this is much worse than we expect...We'd slow the ramp rate of 32-nanometer," he said.
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