Analysts reduce profit predictions for Intel on weakening notebook market

Notebook computers are becoming the majority of computer system sales for many computer makers. With notebooks being such a large portion of sales a decline in notebook shipments and overall weakness in the segment can put a significant strain not only on the computer maker, but on chipmakers as well.

Reuters reports that the poor global economy is starting to be felt by chipmakers. Notebook makers and component suppliers in the U.S. and Asia are reportedly seeing declining order amounts and outright order cancellations. The orders that are being placed and the machines that are being purchased by consumers are skewing towards the low-end, low-cost netbook and notebook market.

At first, the netbook was cited by research firm IDC as a savior for the notebook market and was credited with helping to keep the market afloat in the tough economy. It didn’t take long for the realization to set in that the increasing sales of low margin netbooks would eat into the profitability of notebook makers and chipmakers. That reality is now setting in and analysts are changing earnings projections for some of the largest firms in the IT industry.

JoAnne Feeney, a chip analyst with FTN Midwest Securities, told Reuters, "Clearly the economic slowdown is spreading to notebooks and we're seeing it in two ways. One is in lower unit shipments, but also a mixed shift to cheaper units. And that's going to filter down through the semiconductor world."

Feeney says that Q4 shipments for notebook processors are expected to drop 5% to 10% from numbers in Q3. Previously the forecast predicted an increase for Q4 of 10% to 15%. She also expects to see price cuts from Intel as it tries to compete on price with rival AMD. Demand is shifting to lower cost notebooks, which is a market AMD is typically very strong in.

Tristan Gerra, an analyst from the Robert W. Baird firm, cut his earnings forecast for Intel by 2 cents per share to $1.08 and significantly lowered his outlook for Intel in 2009 from 85 cents to 56 cents per share based on weakness in the notebook market.

Gerra said in a research note, "Our checks indicate notebook demand trends have further deteriorated since Intel reduced its 4Q guidance."

Notebook makers in Taiwan are reportedly looking at a massive 20% to 25% decline in shipments for Q4. ThinkEquity's Vijay Rakesh likens low-cost, low-margin netbooks to Frankenstein saying, "[Netbooks are a] big double-whammy. They're lower margin, it's like Frankenstein. You created it, you hate it, but you cannot kill it because that's what selling."

Netbook sales are showing no sign of letting up with the machines holding top spots on sales charts at popular retailers like Amazon. All notebook manufacturers are getting into the netbook market and the products are quickly becoming something of a commodity with shoppers. The performance across the netbook segment is very much the same thanks to the Intel Atom N270 being the de facto standard in the field and limits Microsoft places on the segment to qualify for Windows XP use. One of the few areas that a netbook can set itself apart from the masses is in the quality of its keyboard and battery life.

Despite what notebook makers want, the netbook is certainly here to stay.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer
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