AMD’s announcement a few days ago that its revenues were expected to drop 25% raises questions far beyond the welfare of a single company.
Put simply, is AMD going to hell, or is the rest of the computer industry going with it? And just how is it going to hell?
Some hells are worse than others. Leaving aside the memory manufacturers (who have their own special circle of hell already set aside), if AMD’s revenue loss is typical of what other hardware manufacturers are facing, everyone is in hot water if not deep doo-doo.
Yet even that has a bad and worse component. If AMD’s revenues are dropping so much because they’re getting much less money for their product, that’s bad for AMD, but not necessarily for anyone else. However, if AMD is getting much less money because they’re selling far fewer units, that’s worse, but not for the usual reasons.
There’s no reason to believe AMD’s product mix has suddenly become much less desirable in the last quarter. If anything, it would be mildly the opposite. You might have a bit of a Sinclair effect with some waiting for the Denebs to show up, but AMD won’t be making many of those anyway next quarter.
No, what looks to be the most likely culprit is that OEMs and distributors are having problems. Of course, people buying fewer computers is a problem, and that’s certainly happening, but there’s been some hints or more that inventories throughout the food chain are also being run down to very low levels. That could cause a big, but temporary drop in sales, and some of that is no doubt due to anticipated lower sales. If that’s why the Intel and especially the AMD revenue productions are dropping so much, then they should largely rebound next quarter. If they don’t, we have a bigger problem than we thought here.
However, lower sales aren’t the only reason why OEMs and distributors might run down their inventory. Both distributors and at least the smaller OEMs are dependent on credit financing to pay for those inventories. If financing gets more expensive, that means prices go up. If lines of credit get cut back, these OEMs and distributors end up capable of less business; they literally can’t pay for their products. It’s hard to make money when you have nothing to make money with. It’s not just consumers who can get crunched by a credit crunch.
Why should you care? It could mean higher prices for some places. It could mean shortages, especially for smaller places. It certainly isn’t good for those actually making the products. In fact, shortages will be a sure sign that a credit crunch is upon us. It may sound odd, but a shortage of supply is actually worse than a lack of demand, because the first indicates that the economic circulatory system that gets the goods to market is breaking down, and if that happens to any real degree, we are in for more than your average recession.
It’s nothing to panic over yet, but this bears watching.