So does this mean fire sales for old inventory? Don't bet on it, said Sharon Stiefel, analyst for semiconductor market intelligence at IHS iSuppli. Because Intel and other chip vendors hit the brakes so soon, inventory didn't build.
"Down the road, they'll have the ability to keep their pricing up. There won't be shortages because demand is so low. I think they were responding to where they could have had an overage they needed to get rid of. Instead of having a fire sale, they said what do we need to do to match what's going out this quarter and the next and not get too far ahead of themselves," she said.
Stielfel isn't surprised or alarmed at Intel's cutback on production. "Looking at what happened last year, the industry was ramping for demand they thought would occur in Q1 and Q2, then things fell much lower than was expected. It brought people to a screaming halt in Q3 and Q4 last year and looking back at how much inventory had built, they were way over with their inventory," she said.
So with demand lower, inventories are staying lower. The lessons of 2001 remain in place, it would seem.
Intel hitting the brakes in response to a drop in sales is a good thing for the company, a sign the company has a clear view into future demand. But this time, the economic situation is different.
"This is the first time I can remember through a downturn that Intel is not continuing fab expansion. This is the first time I've seen them put the brakes on for a while. They are still continuing process development, but it is putting a damper on some remote facilities," said McGregor.
He heard that the company started offering voluntary retirement at the plants based on age and experience, but there wasn't much interest. That means the next likely move is layoffs, which will probably happen under the new CEO. "I fully expect they won't announce anything related to fab capacity, but they will announce realignment once they get the new CEO in place," McGregor added.
And even then, there's a chance Intel won't bounce back to its previous levels. Intel makes PC chips and the PC simply isn't where technology is at these days.
"This is the first time we're seeing the entire industry coming up fairly well, but the PC sector is not leading it. The PC is not driving the direction of technology anymore, it's not driving processor technology and it's certainly not the software magnet for technology anymore. It's a tablet and smartphone world," said McGregor.
Sign up for CIO Asia eNewsletters.