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For IT industry it’s not the calm after storm

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CIOL Bureau
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Duncan Martell

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SAN FRANCISCO: For Intel and AMD, which sell more than 90 per cent of the

microprocessors that power PCs, the bruising combination of forces highlighted

by Compaq are likely to hit in the fourth quarter, typically the industry's

strongest, analysts said.

"The question isn't is Intel going to lower numbers, it's by how

much," said Lehman Brothers analyst Dan Niles. "And that's for the

fourth quarter, not the third."

Compaq, the No. 2 PC maker, warned on Monday that a range of negative factors

converged in September, including the disruption caused by its own merger plans

and the chaos in air transportation that followed the Sept. 11 attacks on New

York and Washington.

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CEO Michael Cappellas likened the uniquely damaging combination to "a

perfect storm" and Compaq blamed the result for more than $1 billion in

lost sales and a projected loss for the third quarter.

Intel, the world's largest chipmaker, is not likely to issue its own sales

warning having already said on Sept. 6 that revenue for its third quarter will

be at the lower end of a range set in July, analysts said.

AMD, for its part, has already warned of an operating loss due to weak sales

and bruising price competition with Intel, its far-larger rival.

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That shifts the risk of a shortfall to the current quarter, analyts said.

"Intel's quarter was pretty much in the bag," said Prudential

Securities analyst Hans Mosesmann. "The issue now is the fourth quarter.

Analysts on average expect Intel to report third-quarter sales of $6.41

billion and per-share profits of 10 cents, according to First Call/Thomson

Financial. AMD's sales are pegged at $833.3 million and the company is forecast

to report a loss of 10 cents per share.

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Trouble in the second half



The second half of the year has traditionally been stronger than the first half
in the 20-year history of the PC, buoyed by back-to-school spending and the

holiday shopping season that comes in November and December.

But after Compaq's warning, the risk has increased that Intel may have a

harder time meeting forecasts for the second half, because Compaq will likely be

curtailing the chips it will order for the fourth quarter, analysts said.

"Our belief was before Sept. 11, Intel would have a hard time making

forecasts for the last half of the year anyway, because computing demand was

less than expected," Niles said. After Compaq, "this is more of the

same with Intel and AMD."

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On top of Compaq's own problems stemming from its proposed acquisition by

computer and printer maker Hewlett-Packard Co., the entire industry is

suffering. While some had expected Microsoft Corp.'s Windows XP operating

system, launching this month, to help boost sales, consumer confidence is

slipping.

That makes it less likely people will rush out and spend $1,000 or more on a

new PC with enough speed and memory to run the new software. Last month, top

market research firm International Data Corp. again reduced its forecast for

consumer PC shipments in 2001, to a decline of 9.6 per cent, well below the 0.2

per cent drop IDC had earlier suggested.

Intel, Santa Clara, California, said in its mid-quarter update that sales

will be at the lower end of the $6.2 billion to $6.8 billion range it set in

mid-July, when it reported third-quarter earnings.

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Advanced Micro Devices, Sunnyvale, California, said on Aug. 29 that it

expected an operating loss in the third quarter as revenue falls 15 per cent

from $985.3 million in the second period. Earlier, its range had been for a

sequential sales decline of 10 per cent to 15 per cent and that it may report an

operating loss.

"The top-tier PC (makers) are certainly going to see some weakness and

that has to translate into some weakness for Intel and AMD," Mosesmann

said.

(C) Reuters Limited 2001.

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