Analyst: Intel Sandy Bridge Demand Lower Than Expected

FBR Capital Markets analyst Craig Berger on Thursday said end users haven’t been as eager as expected to get their hands on Intel’s second-generation Sandy Bridge Core processors, which feature integrated graphics processing capability, and that rival AMD isn’t likely to benefit from Intel’s demand shortfall in the long-term.

Berger wrote that while demand for notebook PCs in Q2 may increase, leading manufacturers to ramp up production as soon as this summer, Intel’s Sandy Bridge integrated graphics processors aren’t contributing to that demand.

’Checks with the top six notebook ODMs have deteriorated of late,’ Berger wrote. ’While notebook demand could improve, and builds could get ratcheted up by June, our contacts suggest Intel's Sandy Bridge products are not stimulating as much end demand as expected, likely impacting AMD too.’

Intel rival AMD, which launched its own integrated graphics chip platform code-named Fusion in Q4’10, is set to bring Fusion to larger and more diverse form factor PCs, partly in response to the increasing penetration of graphics-enabled processors in the overall chip market. According to a study from IHS iSuppli earlier this month, processors with built-in CPU and GPU cores will run inside 50 percent of notebook PCs and 45 percent of desktops worldwide.

While Intel’s Cougar Point design error affected its shipments of Sandy Bridge processors, Berger said AMD at the same time has had to deal with a sluggish overall PC market, and that AMD isn’t likely to see a major boost in sales from Intel’s mistake.

’For AMD, we think 1Q11 revenues tracked at or above the high end of guidance,’ Berger wrote. ’That said, original revenue guidance may have been too optimistic with notebook builds set to fall 11% QOQ in 1Q, and with desktop builds likely to fall by 5%–7% QOQ. So, if AMD does achieve the high end of revenue guidance, or potentially better, the upside is likely short term in nature and due to customers turning to AMD for product when Intel's Sandy Bridge was less available due to the chipset bug recall.’

Berger isn’t the first to associate an improvement in AMD’s figures with the short-lived Sandy Bridge recall, as AMD itself tried to take advantage of the opportunity with a campaign aimed at promoting Fusion with its customers. Berger’s note suggests, however, that the momentum from such a campaign will not last.

Next: AMD’s Post-Recall Campaign

In an interview with CRN in February, David Kenyon, vice president of worldwide channel marketing at AMD, said that AMD is taking advantage of Intel’s Sandy Bridge situation with a campaign titled "ready, willing, and stable." Furthermore, Leslie Sobon, AMD vice president of product and platform marketing, said customers turned to AMD following the Sandy Bridge recall and that retail partners have ordered additional AMD products in order to meet the need Intel wasn’t meeting.

As for Berger, he predicts in the note that AMD, as with the rest of the industry, will continue to struggle in the coming months. ’For 2Q, we think AMD's revenues will fall QOQ given its 14th week in 1Q, Intel chipset goodness unwinding, and sluggish desktop builds, still rather unexciting.’

Another analyst note earlier this month made a similar case that Intel and AMD are both relying on currently lackluster PC demand. Nomura Securities analyst Romit Shah on March 14 wrote that Intel’s revenue in Q2 will fall short of analyst expectations. ’While the major notebook and motherboard manufacturers are optimistic about shipments (sell-in) in March, ultimately for Intel it boils down to PC demand,’ Shah wrote. ’Every major PC OEM missed and guided below consensus for Q1.’

In addition, Shah agreed both that AMD benefited from Intel’s bungled Sandy Bridge launch, but not enough to prevent a less-than-stellar first fiscal quarter. ’Furthermore, we believe Advanced Micro Devices, which is arguably the biggest beneficiary of Intel’s design flaw, is tracking to the low-end of Q1 guidance.’

In a conference call on Feb. 1, Intel said it had identified a circuit design error in its Intel 6 series chipset, code-named Cougar Point , and that it had fixed the problem. While some Intel partners were dissatisfied with Intel's handling of the matter, others gave the chipmaker credit for quickly identifying and fixing the problem, and for offering a timeline for issuing replacements. Intel on Feb. 7 began its resumption of Sandy Bridge shipments.