NVIDIA and AMD well prepared for downturn in PC sales

NEW YORK, USA: Chip stocks are facing a case of the Summertime Blues as doubts about the economy and sluggish PC sales are clouding the industry's second-half outlook. While PC sales are important to AMD and Nvidia's top lines, both companies have made significant efforts to diversify their product lines towards new revenue drivers.

The Bedford Report examines the outlook for companies in the Semiconductor Industry and provides equity research on NVIDIA Corp. and Advanced Micro Devices Inc. (AMD).

Earlier this month, the Semiconductor Industry Association (SIA) announced that global chip sales fell 1.5 percent in June from a month earlier as weak consumer demand offset growth in corporate-replacement purchases, smartphone demand and increased spending on information-technology infrastructure. Brian Toohey, president of the SIA, remains optimistic, saying "overall semiconductor sales are on track with growth projections of 5.4 percent growth for 2011."

IHS iSupply predicted last week that spending on chips for wireless devices, in particular smartphones and tablets, will rise 10.7 percent this year to $55.4 billion, eclipsing the $53.1 billion spent on semiconductors for conventional computers, which will be up just 1.2 percent this year.

According to a recent report from Strategy Analytics, Nvidia is one of the top five sellers of smartphone applications processors. The company's Tegra line of chips is proving popular with Android tablet and smartphone makers. Most Android 3.x Honeycomb tablet that's available at the moment has a Tegra 2 processor.

While AMD has made it clear that it does not plan to enter the smartphone market, the company has begun to concentrate on tablets. AMD's Z-series chips, which are based on the Fusion architecture, will deliver a full PC client experience in tablets, says Chris Cloran, vice president and general manager of the computing solutions group, client division at AMD.