Graphics chips make a comeback in first quarter sales

In a sign that the recession in the PC market may be subsiding, graphics chip sales bounced back somewhat in the first quarter.

Graphics chip sales were up 3.3 percent in the first quarter from fourth-quarter levels.

Graphics chips are one leading indicator of PC sales, since graphics chips are purchased ahead of actual PC shipments to customers, so a recovery in graphics chip sales is a good sign for the overall market, according to market researcher Jon Peddie Research.

The hint of a recovery is consistent with comments from Paul Otellini, chief executive of Intel, who said in his quarterly conference call with analysts that “the worst is behind us.”

During the quarter, Intel and Nvidia gained market share. Intel captured 49.7 percent of the market, up from 47.7 percent in the previous quarter, while Nvidia had 31.1 percent, up from 30.6 percent. Advanced Micro Devices lost share, slipping to 17.1 percent from 19.3 percent.

In the third and fourth quarters, PC makers stopped ordering graphics chips and depleted inventories in anticipation of a long recession. In the first quarter, they started buying again.

But year over year, the comparison is still ugly. Shipments were 74.9 million chips in the first quarter, down 21 percent from a year ago. The market research firm predicts that sales won’t get back to normal seasonal levels until the third quarter of 2009. Sales aren’t likely to hit 2008 levels until 2010.

The market may get a boost from Windows 7, which is scheduled to ship this year. New operating system launches from Microsoft usually prompt upgrade sales. (Although, as we reported a couple of weeks ago, some are predicting a weak start for Windows 7.) Jon Peddie, head of Jon Peddie Research, said he still predicts an upturn in the PC market in the third and fourth quarters for graphics chip sales.

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