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Intel's fourth-quarter warning is not only bad news but bad timing. With the Consumer Electronics Show kicking off Thursday adorned by all those bright, shiny gadgets, Intel effectively said: gadgets maybe, but not so bright and shiny.

And for an Intel warning, this one was particularly dire. The biggest chip bellwether said it now expects only $8.2 billion in revenue for the quarter, a 23 percent drop from the year-earlier period, and 20 percent from the third quarter. And this comes after issuing a warning on November 12.

So what's happening? The clearest example of the gloom that has descended on the chip industry, and by extension computer and gadget makers, came relatively early from another chip bellwether, Taiwan Semiconductor Manufacturing Company -- the largest chip contract manufacturer, which supplies chips to all the first-tier electronics and computer makers. Back on October 30, TSMC issued a forecast that set the tone for the rest of the industry: CEO Rick Tsai said the supply chain -- the myriad of companies that order chips from TSMC -- was "reducing inventory very aggressively."

That supply chain, either directly or indirectly, is the computer and gadget makers of the world.

So going into CES, the picture is not pretty. "We just heard consumer electronics sales over the holidays were down 26 percent year to year," said Broadpoint AmTech analyst Doug Freedman. "You want to head into CES with a pall over it? There it is, right there."

And go the other way, up the supply chain -- the chip gear makers who supply production equipment to chip companies -- and things are even more bleak, with some gear makers saying they don't expect any orders at all in 2009 for certain categories of equipment. In December, Netherlands-based ASML CEO Eric Meurice said that "never before have we witnessed such a sharp and sudden fall-off in lithography system demand."

Other examples are almost too numerous to list: for starters, Toshiba and SanDisk slashing flash memory output 30 percent, Taiwan's memory chip industry on the verge of collapse, and Micron Technology posting a massive $706 million loss.

Yes, there's probably a silver lining in all of this, in that chipmakers and gadget suppliers have to cut the fat and become lean and mean, but where does it end?

And how will this downturn transform the computer industry? Looking at it through the prism of Netbooks -- which are expected to catch much of the limelight at CES -- may provide some insight. These cheap laptop computers are on fire, partially because they are compelling designs but mostly because of price. Good thing? Yeah, great for consumers and small businesses that are finally realizing they don't have to pay $2,000 for a small, lightweight ultraportable notebook. Or simply can't afford a $1,000 notebook.

But not so great for Intel, Apple, and others. "What is the most expensive laptop out there? The Apple (MacBook) Air," said Freedman. "That's a $1,500 or $2,000 machine. Now all of a sudden I'm giving you ultraportability for $500," he said, referring to the price of a Netbook.

In this sense, over-priced notebooks could be seen as roughly equivalent to large SUVs -- overkill. Just as General Motors must wean itself off lumbering SUVs, so may Intel, Hewlett-Packard, Sony, Toshiba, et al., be forced, to some extent, to wean themselves off high-profit notebook computers. After all, what took Sony so long to bring out a Netbook? And why don't we see an Apple Netbook? It's not a stretch to say that those companies don't like the idea of selling a lot of inexpensive computers.

At CES, companies will be hawking flashy gadgets, as always, and maybe attendees can suspend disbelief for a few days blinded by the glare of the gadgets. But that's really just lipstick on a pig.

This post was updated at 11:16 a.m. PST with comments from a Friedman, Billings, Ramsey & Co. analyst.

Intel warned Wednesday that its fourth-quarter revenue will fall $2 billion short of its original forecast, due to PC makers curtailing chip orders.

The announcement comes less than two months after Intel warned on November 12 that its fourth-quarter performance would fall below its original forecast.

Revenue is now expected to be about $8.2 billion, down 23 percent over the same quarter in the previous year and down 20 percent sequentially.

On November 12, Intel said it expected revenue to be between $8.7 billion and $9.3 billion. Before that, Intel had expected to generate $10.1 billion to $10.9 billion in revenue for the quarter.

The drop in revenue is a result of PC makers slicing orders and living off their existing inventory of chips, Intel said.

Intel also noted it expects to report a greater loss in its equity investment, interest, and "other" category of between $1.1 billion and $1.2 billion, versus its previous expectation of a loss of about $50 million.

The chipmaker's investment in Clearwire, for example, is expected to result in a noncash charge of about $950 million in the fourth quarter.

Intel's gross margin is now expected to fall toward the "bottom of the previous expectation of 55 percent, plus or minus a couple of points," the company said.

Research and development spending, as well as general and administrative costs, are anticipated to be $2.6 billion, lower than Intel's previous forecast of $2.8 billion.

Intel, although the largest, is by no means the only chipmaker to issue a fourth-quarter warning.

Last month, Texas Instruments and Broadcom both warned that their quarterly performance will fall short of previous forecasts. Intel archrival Advanced Micro Devices also announced that its fourth-quarter results will fall below previous expectations.

Intel shares fell as low as 6.7 percent to $14.34 in early morning trading. The company is set to report fourth-quarter earnings on January 15.

While Wall Street may have been surprised by Intel's second warning for the quarter, one analyst noted it was not a "complete shock."

Glen Yeung, an analyst with Citi Investment Research, noted in an analyst report:

We had been anticipating a shortfall, modeling 4Q08 down 17 percent below even the low end of Intel's guidance, and in this regard are not completely shocked by Intel's pre-announcement.

Recent data points from notebook original design manufacturers (ODMs) and motherboard makers have been noticeably negative, substantiating such a shortfall. The miss, however, comes after Intel had established its earnings date, and may destroy any false hope that may have arisen on the premise that the earnings date signaled they had made the quarter.

Yeung noted that Intel's November warning of a sequential revenue drop of 12 percent would have already marked its worst fourth quarter sequential decline in history. And with this latest announcement, the historic gap gets even wider.

And for Yeung, it's the revenue decline that causes more concern than a drop in gross margins. He notes that the drop is still within Intel's previously issued forecast.

Barclays Capital analyst Tim Luke, meanwhile, believes weakness in desktop computers and servers is mainly driving the revenue shortfall.

He advised investors to keep a keen ear tuned to any comments Intel may make about its assessment of system-level and finished-goods inventory when it reports its fourth quarter results next week. Luke noted that he believes inventory in the distribution channel remains moderate, while inventory on hand at its customers is likely up.

Investors may also want to take heed of comments Intel may make about its future revenue guidance, visibility into the quarter, whether future gross margins may dip lower than the expected 53 percent range, and the degree that Intel may reduce its capital expense, said Craig Berger, an analyst with Friedman, Billings, Ramsey & Co.

The rate that computer makers are shipping systems in the fourth quarter is expected to fall 3 percent sequentially for notebooks and 27 percent for desktops, Berger noted.

And in the first quarter, Berger is expecting notebook shipments to decline 23 percent sequentially and desktops by 18 percent quarter over quarter. Overall, that could result in a 21 percent sequential decline, which would mark the worst seasonal decline in the chipmaker's history, he added.

Berger noted that given the steep drop in revenue, Intel could announce a cut in its workforce during its earnings call next week.

Satyam Computer Services announced Wednesday its founder and chairman, B. Ramalinga Raju, has resigned, following an admission that he inflated its financial performance.

Satyam, one of India's six largest IT outsourcing companies, counts such Fortune 500 companies as Sony among its customers.

The company said it received a letter from its chairman on Wednesday, outlining some of the accounting irregularities and his resignation.

While Satyam did not include a copy of the letter in its announcement, a report in The Wall Street Journal contains a copy of the letter.

Raju noted in his letter that Satyam's balance sheet for the quarter ending September 30 includes inflated cash and bank balances of 50.4 billion rupees ($1.04 billion), nonexistent accrued interest of 3.76 billion rupees, an understated liability of 12.3 billion rupees due to funds arranged by the chairman, and an overstated debtors position of 4.9 billion rupees, according to the Journal report.

And during the September quarter, the company also reported inflated revenue of 27 billion rupees, vs. actual revenue generation of 21.1 billion rupees. That resulted in artificial operating margins of 24 percent of revenue, compared with its actual 3 percent margin.

In the letter, Raju said:

The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly...The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations - thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was that poor performance would result in a take-over, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

The Securities and Exchange Board of India announced it is investigating the matter.

The company, in a statement, said it was "shocked" by the letter and is working toward moving forward, in light of the disclosure.

Windows 7 could be one of Microsoft's greatest operating systems, if it fulfills the promise shown by the unofficial beta version (build 7000) we have been testing for the past couple of days.

Let me preface these quick impressions of Redmond's latest opus by saying that I came to Windows 7 after having happily run the much-maligned Windows Vista on my Intel Core 2 Duo-based PC for the past 18 months (alongside Ubuntu).

I found Vista to be a worthy upgrade from Windows XP SP2. Despite its obvious flaws (can you say "resource hog"?) and the acknowlegement that some of its features need to be disabled by default, Vista at heart is a much more stable and usable operating system than XP, which was first released in 2001.

The release of Service Pack 1 and gradual driver improvements have built on Microsoft's somewhat-shaky Vista beginning.

Coming from this background, I have been pleased to discover over the past several days that Microsoft appears to have built on Vista's strengths and addressed most of its weaknesses with the beta release of Windows 7.

I found the Windows 7 beta a painless install. Out-of-the-box driver support on our test machine was perfect, and it took only half an hour and two quick reboots to begin running a stable desktop environment, though we wondered why Windows 7 created a 200MB partition in addition to its main partition. The 33MB of updates quickly came down the pipe upon loading the desktop.

Basic desktop performance was strong; the reports that Windows 7 is simply faster than Vista appear to be true. Certainly, Windows 7 had no problem simultaneously installing and launching applications, downloading files, browsing the Web, and carrying out other tasks on our modest 2.8GHz Pentium 4, which has only an 80GB IDE hard disk and 512MB of RAM.

Vista's most visible annoyance, User Account Control, has been pared right back on its default setting, and we encountered it only a couple of times throughout a whole morning of installing applications. However, if you feel nostalgic for UAC's old behavior, you can easily change it back via Windows 7's new Action Center, which now centralizes all of the security updates and warning alerts that Windows throws your way.

Windows 7 recommended that we install a third-party antivirus package (it suggested Kaspersky and AVG), but its antispyware package Defender comes preinstalled. Microsoft appears to have an antivirus package installed under the hood; when downloading new software with Firefox, we were told that our downloads were being scanned for viruses.

I particularly like the new photo-realistic device icons, and the overhaul of the way Windows handles and ejects USB storage devices. Microsoft appears to have wiped out a lot of the Windows XP-era interface quirks of Vista; the result is a much more simplistic, unified experience for common tasks.

I also enjoyed the overhaul of the Windows taskbar, especially the slick graphics, but a bug prevented us from being able to use the preview function (it showed a black rectangle instead), and you'll want to play with the taskbar settings to get this piece of the Windows 7 puzzle just right. It's easy to get minimized windows mixed up with launcher buttons, for example.

I want to stress that we didn't test the Windows 7 beta exhaustively, and business users will need to closely examine deployment software and how the operating system integrates into their existing environments, as well as its ability to work well with third-party software. For example, we couldn't get Adobe Systems' Creative Suite 3 to install on Windows 7 beta; the installer told us we needed to quit Internet Explorer first.

But perhaps the most important thing to note about the software is that at first glance, it has much more of that nebulous "Windows XP feel" than Vista ever did. Even on our modest machine, Windows 7 didn't thrash the hard disk or ever feel unresponsive, except when we were installing Apple's iTunes, a notorious pain on Windows systems.

In general, this signals that Microsoft has spent a lot of effort with Windows 7 on delivering a solid operating system that won't "wow" anyone but will satisfy them on a much deeper level. In other words, just what the doctor--and the customers--ordered.

You can find a lot of further Windows 7 analysis on the ZDNet.com blog of Adrian Kingsley-Hughes, as well as our own photo gallery here.

Renai LeMay of ZDNet Australia reported from Sydney.

Sun Microsystems announced Wednesday it has acquired Q-layer, a Belgium-based cloud-computing specialist.

Q-layer's technology adds automation to both public and private clouds, allowing companies to simplify the management and deployment of data center applications. Its software will give customers greater flexibility in areas such as servers, storage, and bandwidth, Sun said.

Like many other companies in the tech sector, Sun has been orienting itself to cloud computing, a Web-focused spin on an old concept in which a sizable proportion of data and computing resources are hosted and managed in a central location, away from local machines.

Details of the deal were not disclosed. Q-layer was founded in 2005.

Advanced Micro Devices' manufacturing spinoff got an all-clear from the U.S. government on Tuesday.

The Committee on Foreign Investment in the United States (CFIUS), part of the U.S. Treasury Department, gave the green light to AMD and the Advanced Technology Investment Company (ATIC) to create The Foundry Company, the manufacturing operations that AMD spun off back in October.

CFIUS has also determined that "the proposed additional investment in AMD by Mubadala is not a covered transaction subject to CFIUS review," according to AMD.

ATIC will own 65.8 percent of The Foundry Company and AMD 34.2 percent, according to a revised statement from AMD in December.

ATIC is a technology investment company wholly owned by the Government of Abu Dhabi. The Foundry Company will be a U.S.-headquartered chip manufacturing company with manufacturing facilities in Dresden, Germany. Future plans call for manufacturing facilities in Saratoga County, New York.

Both SanDisk and Samsung announced solid-state drives on Tuesday--though that's where the similarity ends. SanDisk's SSDs are aimed at Netbooks, while Samsung's new SSDs are for the high-performance server market.

SanDisk Gen 2 pSSD drives for Netbooks are available in capacities up to 64GB

(Credit: SanDisk)

SanDisk is debuting its new 8GB, 16GB, 32GB, and 64GB pSSD-P2 and pSSD-S2 solid-state drives at the Consumer Electronics Show in Las Vegas this week. Samsung's 100GB SS805 drive, on the other hand, is being introduced on Tuesday at the Storage Visions 2009 Conference, also in Las Vegas.

The second-generation SanDisk drives, designed as drop-in replacements for hard-disk drives, use the Serial-ATA or SATA interface. First-generation drives were based on a slower Parallel-ATA or PATA interface.

New Netbooks such as the Acer Aspire One and the HP Mini 2140 use the SATA interface. (Many ultraportable notebooks, like the first-generation MacBook Air and HP Compaq 2510p, however, used the slower PATA interface.)

"Netbooks represent the fastest growing PC segment in 2009 and 2010 yet widespread adoption of SSDs in netbooks has been limited by speed, capacity and cost constraints," Rich Heye, senior vice president and general manager for solid-state drives at SanDisk, said in a statement. "With the significant improvements in performance, capacity and low pricing, these SSDs are a perfect fit for the exploding Netbook market."

SSDs are generally faster than hard-disk drives, particularly at booting and launching applications, taking about half the time of an HDD, according to SanDisk.

SanDisk's drives, slated to be available in February, 2009, are built using the company's 43-nanometer Multi-Level Cell (MLC) flash memory. MLC technology generally yields lower-cost SSDs compared with more traditional Single-Level Cell or SLC technology. SanDisk manufactures the flash memory in Yokkaichi, Japan with its partner Toshiba.

SanDisk did not provide pricing information but said its 32GB modular SSD is "priced at parity" with 80GB 2.5-inch HDDs in OEM quantities. HDDs with this capacity range in price from about $50 to $100 (depending on speed) so this is rather vague pricing guidance.

Unlike SanDisk's consumer SSDs, Samsung's SSD is targeted at the very-high-end corporate enterprise market. Samsung uses more pricey (and faster) SLC technology since its drives are targeted as a replacement for the high-performance 15,000 rpm hard-disk drives that are the staple storage device of large corporations. These drives are typically used for applications such as video on demand, streaming media content delivery, internet data centers, virtualization, and on-line transaction processing.

Samsung claims its 100GB Enterprise SSD can process IOPS (input/output per second) more than 10 times faster than the fastest 15,000 rpm SAS (Serial Attached SCSI) HDD available for transactional data workloads.

The high-performance 2.5-inch enterprise drive reads data sequentially at 230 megabytes per second (MB/s) and writes sequentially at 180 MB/s, Samsung said. The 100GB SSD's performance is derived from an 8-channel controller, improved NAND flash and special drive firmware, all developed by Samsung.

The 2.5-inch drive will be available this quarter.

Samsung did not provide pricing information.

With the overall economy slumping, the tech industry is taking its fair share of hits. We'll keep updating the chart below as news of company changes comes in. See our complete coverage of how the tech sector is faring here: Tracking the tech downturn.

Know of a layoff not listed here? Let us know on this form or e-mail us.

See also: The spreadsheet of sunshine: Who's hiring.

More than half a million of India's small businesses that have never owned PCs before will acquire their first computers this year, according to a new study released Monday.

According to Access Markets International Partners (AMI-Partners), nearly 22 percent of small businesses, or companies with up to 99 employees, in India have plans to invest in computers for the first time over the next 12 months.

While buying their first PCs, these small businesses will also boost spending in other IT sectors in India, such as software, services, and security, the research house said.

Dipendra Mitra, an analyst at AMI-Partners, said small businesses in India that already own PCs will extend the lives of their existing personal systems as they try to cut costs during the economic downturn.

As such, "non-PC-owning businesses hold the key to growth in India," Mitra said in a statement. "Even if a fraction of the 2.5 million non-PC-owning businesses buy a PC, it will provide a considerable boost to the Indian IT industry."

Although small and midsize businesses are a vital part of India's economy and a major contributor to its gross domestic product, only a little more than a third of all small businesses actually own a PC, AMI-Partners noted. A reason for this is their lack of awareness of the benefits PCs can provide, the research firm said.

A separate AMI-Partners survey found that more than 55 percent of small businesses see PCs as having no relevance to their business, and nearly a third have not even considered buying one.

However, Mitra said, this attitude is changing.

"About a quarter of non-PC (small businesses) say PCs will make their business look more professional," he said. "One-fifth of these non-PC SBs say PCs will increase the productivity of their employees, and the resultant business automation will boost efficiency."

Sol E. Solomon of ZDNet Asia reported from Singapore.

Correction at 8:00 a.m. PST: Logitech employs over 9,000 people.

Swiss peripherals manufacturer Logitech plans to cut approximately 15 percent of its salaried workforce. Logitech has more than 9,000 employees worldwide.

In a statement Monday, the company cited the deepening economic gloom as the reason for the cut.

"During the December quarter, the retail environment deteriorated significantly," Logitech Chief Executive Gerald Quindlen said. "We experienced varying degrees of weakness across all geographies and channels, as our customers reduced inventory levels in the face of weaker consumer demand. Moreover, we expect the economic environment to worsen in the coming months, and we are therefore taking significant actions to align our cost structure with what is likely to be an extended downturn."

Logitech, which has offices in Silicon Valley, Switzerland, and Asia, makes products such as keyboards, mice, Webcams, headphones, and remote controls. On Tuesday, it introduced several products at the Consumer Electronics Show in Las Vegas. Logitech has sales offices in major cities in North America, Asia, and Europe, including in the United Kingdom.

In its announcement about its restructuring, the company withdrew its growth targets for sales and operating income in its fiscal year 2009, and did not provide any new estimates.

Logitech will give details of the job cuts and restructuring with its fiscal third-quarter results, due on 20 January. It expects savings from the restructuring to begin to show in the first quarter of its fiscal year 2010.

Tom Espiner of ZDNet UK reported from London.