The recession is spreading into all corners of the global economy, with some of the world’s big tech companies now reporting downturns in demand and earnings.

Stocks like Intel, Nat Semi, Applied Materials and the like don’t feature all that much in investor thinking in Australia, but reports yesterday show an accelerating slump as orders dry up or are cancelled. Technology sales are falling, consumer entertainment and technology products are sagging: mobile phones, iPods and the like can’t hold back the tide.

These high end tech stocks have already come in for a sell off this year, but the world’s largest chipmaker suffered a big drop off in business in the past month. And it appears to be sector wide, given the statements from Nat Semi and Applied Materials on Wednesday and Qalcomm last week.

Intel is a bellwether for the US and global technology industry. It reported that sales were being “affected by significantly weaker than expected demand in all geographies and market segments. In addition, the PC supply chain is aggressively reducing component inventories.”

The warning came less than a month after Intel issued solid forecasts for the fourth quarter on its third-quarter earnings call. US analysts said the update yesterday indicated a 14% drop in revenue expectations since the forecast a month ago. It’s a fall of $US1 billion or more in expected sales in a month.

PC makers like Dell are cutting back on orders: the failure of Circuit City and Wednesday’s earnings and sales downgrade by Best Buy tell us that the entire IT and consumer electronics sectors are slumping as consumers in the US, Europe, Japan, Australia, the UK and even China cut purchases. We’ve seen it here with Harvey Norman’s same store sales falling steadily since early October. Electrical retailers in the UK and Europe are reporting sales slumps as consumers cut their purchases.

So it’s no wonder the drop off in demand is rapidly working its way back through the system to the likes of Intel, Nat Semi and also Applied Materials, which makes equipment for chipmakers like Intel.

Qualcomm, the biggest supplier of wireless chips for mobile phones, has already cut sales estimates for the rest because customers were in turn cutting purchases.

Applied Material is the leading supplier of chip-making equipment to companies like Intel. It said Wednesday it was cutting 1,800 jobs or 12% of its workforce in order to cut costs in the face of a slump in orders. The big north American Telecoms group, Nortel, revealed last Friday it was cutting 1,300 jobs. National Semi Conductor (Nat Semi) is the chipmaker of choice for the world’s five leading mobile phone manufacturers: it cut its revenue forecast on Wednesday as well and said it will sack 5%, or 330 people, from its workforce.

The company said second-quarter sales will fall by up to 10% from the previous period and the business environment has “deteriorated significantly” since the beginning of the quarter. National said its sales for the quarter ending November 23 will be $US420 million to $US425 million, down from the $US70 million to $US480 million range predicted in September. The company makes chips that regulate and control power in devices such as Apple iPhones, for example.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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