MarketClub's Trade Triangle technology short INTEL from $22.65 on 9/02
INTEL news from our media partner Associated Press
By JORDAN ROBERTSON
AP Technology Writer
(AP:SAN FRANCISCO) Intel Corp.'s deep cuts to its fourth-quarter guidance offers further evidence that technology companies are in for a beating because of the economy.
The Santa Clara-based company slashed more than $1 billion from its sales forecast and dialed its profit expectations way back. Intel, the world's biggest maker of PC microprocessors with 80 percent of the global market, blamed a clampdown on spending for reducing demand for its chips.
The announcement Wednesday after the market closed illuminates how the economic crisis is rippling across industries. As consumers and businesses cut back on buying all kinds of things, their reduced purchases of PCs are harming computer makers and their suppliers.
Wall Street got an early glimpse of the severity of damage to the technology sector last week.
Cisco Systems Inc., the world's largest maker of computer networking gear, reported that orders fell off abruptly in October. The grim forecast suggested that other tech companies will have to absorb major damage to their sales as well. Cisco was the first major technology company to report results that included October.
More specific warning signs for the PC sector emerged last week when Lenovo Group Ltd., the world's fourth-largest PC maker, reported that profits plunged 78 percent.
Intel doesn't report its fourth-quarter results until January. Its early acknowledgment is a sign that business conditions are so bad the company needed to make major revisions to its financial models.
Intel now expects sales of $9 billion in the last three months of the year, plus or minus $300 million. It previously expected sales between $10.1 billion and $10.9 billion, and analysts polled by Thomson Reuters were looking for $10.3 billion.
Intel blamed "significantly weaker than expected demand in all geographies and market segments" and PC makers buying fewer new chips as they burn through existing inventory to save money.
Intel's profit is being hurt badly. The company's closely watched gross profit margin will now come in around 55 percent of revenue, plus or minus a couple of percentage points. The previous guidance was for roughly 59 percent.
Gross margin measures profit on each dollar of revenue once manufacturing costs are stripped out. It's an especially important measurement for chip makers because upgrading and maintaining their factories is hugely expensive.
Intel shares fell 97 cents, or 7.2 percent, to $12.55 in extended trading after the warning was announced. The stock had fallen 41 cents, or 2.9 percent, to $13.52 during the regular trading session.
The shares have lost about half their value since a 52-week high of $27.99, reached last Dec. 6.
Intel had been performing well before the downturn struck. A new manufacturing process that shrinks the size of its chips' circuitry has allowed it to wring healthy profits despite pressure on prices for those chips. One of those pressures has been the rise of so-called "netbooks," which are pint-sized PCs that are cheaper than regular laptops and are used primarily for surfing the Internet.
Intel's $2.01 billion in profit for the third quarter beat Wall Street's expectations. At the time of the earnings release, the company was optimistic about what lay ahead, if fuzzy on details. Intel warned that it would be tough to predict fourth-quarter results but predicted steady profits.
Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.