Intel sees unsold inventory piling up fast

Not only is Microsoft Corp. (NASDAQ: MSFT) feeling the hurt of the slumping PC industry, the leading chipmaker is also weathering the effect. In fact, Intel Corp.'s (NASDAQ: INTC) chip inventory has become so high that it may have to build new factories out of that silicon instead of selling those chips to, well, anyone.

Businesses have cut back spending on new gear that includes Intel processors, and consumers have flocked to bargain-priced netbook PCs since late 2008. Although Intel chips power almost all of those new machines, the Atom processor inside almost every one of them is not really a high-margin product. Nor can those sales make up for the overall downward sales trend in desktop and laptop PCs, and corporate servers.

What is a chipmaker to do? It's sort of like the inventory glut the automotive industry is facing. Large global manufacturing outfits can't just stop manufacturing nearly as fast as consumer tastes and sales dictate. So, when the economy tanks and credit lines become tight, the consumer and business money spigot can turn off almost overnight.

Those factories can't, though. Intel's sale of a lower-priced, non-advanced chip for these $350 netbook PCs won't be able to help it sell all those other higher-margin and unwanted chips. At some point, fire sales of chips will occur, and then we'll really see laptop PC prices and small servers much cheaper than they are now. Will anyone buy them then? Who knows.