Has Intel stuffed the channel?
Readers who have followed our series on semiconductors know we think supply is starting to outpace demand and will lead to price pressures. This is exacerbated by the increasing rivalry between Intel (INTC - Annual Report) and AMD (AMD - Annual Report). With AMD gaining share many predicted Intel would start a price war. Now Australia’s Inquirer reports it has already begun:
Handelsbanken Capital said it is expecting another profit warning from Intel because of poor chip sales.
Handelsbanken claimed Intel “stuffed the channels with chips in February and March, the floor fell out in April, and sales dropped 52% year on year”.
For the uninitiated, “stuffing the channel” means selling far more inventory than is needed to wholesalers. This leaves little room for other products and is typically done by drastically reducing prices. Companies also sometimes resort to stuffing the channel when sales are below expectations at the end of an accounting period. When this happens, they get to record higher revenue, but the high inventories that have to make their way through the system usually mean the next quarter will be even worse.
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