Industry Information

ATI Suffers from Shifting Intel Strategy

Online staff --
Electronic News, 4/11/2006

Intel may be shifting its chipset strategy in a way that could affect third-party chipset suppliers.

That’s according to a new report from investment banking and research firm, Friedman, Billings, Ramsey, which downgraded ATI’s stock from “outperform” to “market perform” in part due to Intel’s chipset strategy and in part due to a slowing PC market.

“We believe Intel is rethinking its strategy of using third party chipsets to solve its supply issues,” said Chris Caso, a senior analyst at FBR, in his report downgrading ATI. “Contacts have indicated that rather than redesigning Intel-based motherboards to accommodate chipsets from ATI, vendors had chosen to simply build more AMD-based systems. As a result, we believe Intel has decided to outsource production of all non-PC products, thus providing more capacity for chipset production. We think this does provide a risk to ATI’s chipset revenue in the second half of 2006.”

Caso also cited worse than seasonal conditions throughout the supply chain, and added that graphics suppliers would not be immune from the effects of this on the PC industry.

“We are skeptical regarding a market improvement in Q2 and expect the Q3 seasonal build to be negatively affected by fears of a market stall due to the [Microsoft] Vista push-out,” Caso said.

In addition FBR noted that ATI’s inventory was up 47 percent quarter over quarter in its fiscal Q2 which ended in February.

“While management is confident in their ability to work this down in fiscal Q3, we think this presents a high degree of risk if the market continues to slow,” Caso said. Chipsets now represent 25 percent of revenue for ATI.

But on the plus side, Caso noted that FBR believes Intel is in the process of “enabling” ATI for notebook chipsets to ensure the presence of another chipset supplier to provide security in the notebook market.

“This additional notebook chipset revenue is needed by ATI to replace market share that will be lost to Nvidia as Intel's Napa platforms ramp, on which Nvidia is expected to gain share in discrete notebook graphics,” said Caso. “We think the net effect of these moves would be neutral to ATI notebook revenue, but negative for gross margins since we expect chipsets to possess lower margins than graphics.”

posted by C.H. Chen @ 2:27 AM