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Analyst: Intel Chip Shortage Hurting Market

The situation could leave notebook computers in short supply during the critical holiday season, one analyst says.
LONDON — A shortage of Intel peripheral logic chips may have caused the global semiconductor market to come in below expectations in October according to Bruce Diesen, strategist with Handelsbanken Capital Markets.

As the Intel chipset shortage is not predicted to end soon it looks set to limit market growth for months to come and could leave notebook computers in short supply in the run up to Christmas.

Despite achieving record-breaking three-month average revenues in October of $20.05 billion, the global semiconductor market was below a previous prediction of $20.3 billion and the averaging effect hides an even more severe miss in October’s actual sales, according to Diesen.

“Actual world chip sales rose 5.5 percent year-on-year in October, below expectations of a 9 percent year-on-year gain,” he said. “There was a big slowdown in shipments of notebook PC processors, probably due to a chipset shortage at Intel,” he observed.

Intel’s peripheral logic chip set shortage has been going on for some time and is expected last into the first-half of 2006, according to Andy Bryant, the company’s chief financial officer.

The inability to produce enough peripheral logic chips eventually limits the manufacture of notebook computers and thereby hits the industry’s processor revenues as well. Although other companies make peripheral logic chip sets the complexity of marrying them up with particular processors, bus formats, clock speeds, package types and supply chain logistics means that they also find it difficult to drop into sockets waiting for Intel chips.

In a note sent to investors to discuss October’s global semiconductor figures, Diesen noted that processor sales at both Intel and Advanced Micro Devices Inc. plunged in October. He also observed that processor average selling prices (ASPs) fell from $110 to the middle of the $80 to $90 range, indicating that Intel had trouble delivering notebook processors.

While chip deliveries and prices were down production of PCs in China in October was strong, Diesen said, indicating that the Chinese would have drawn down existing processor inventories. “October is a heck of a time to have a chipset shortage,” he commented.

Diesen said that although October sales of chips for mobile handsets were in similar quantities to those in September there was either a shift in mix towards low end DSP, contrary to the normal seasonal upshift, or that the mix shift occurred but Texas Instruments, the largest vendor of DSPs, was forced to cut prices. Meanwhile NAND flash memory chips sold strongly, Diesen said.

“We keep our chip sales forecast at 7 percent growth for 2005 and 8 percent annual growth for 2006, but see a risk that Intel's mid-quarter guidance next week could disappoint the market,” he added.

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