Intel Shares Plummet on Revenue Warning
SAN FRANCISCO — Investors savaged microprocessor giant Intel Corp.’s stock Thursday after the company said its third-quarter sales will fall short of expectations because of weaker demand in Europe.
The warning sent the Santa Clara, Calif., company’s shares plunging 21% in after-hours trading, dragging many other technology stocks down with it.
Intel’s shares fell as low as $48.63 in after-hours trading. They had slid $1.58 to close at $61.48 in regular Nasdaq trading.
Though after-hours activity doesn’t always reflect where a stock will trade the next day, analysts expect a steep fall in Intel’s stock today.
The company said after the market closed that it now expects revenue for its third quarter to be 3% to 5% higher than second-quarter revenue of $8.3 billion--but lower than previous targets. Some analysts had predicted a 9% rise. Intel also said that gross margins would hit 62%, down from the 63% to 64% predicted earlier. The firm declined to comment on earnings-per-share expectations.
Analysts agreed Europe has been a problem for the world’s largest computer-chip maker. But some see Intel’s predicament as stemming from a general malaise in demand for personal computers--which are the key to Intel’s business and could have far-reaching effects on the tech industry.
“Europe is basically down the toilet,” said Ashok Kumar, an analyst with US Bancorp Piper Jaffray in Minneapolis. “[But] there’s weakness worldwide with the exception of Japan.”
Many investors seemed to anticipate Thursday’s bad news. Intel stock had already fallen 25% from its all-time high of $74.88 on Aug. 31 to Monday’s close of $55.81.
Kumar, who has generally been bullish on Intel, recently spurred a drop in the company’s share price by lowering his rating on the chip firm from “strong buy” to “buy”--a move viewed critically by some other analysts. Thursday’s announcement would seem to vindicate his doubts.
Kumar said that several problems are slowing demand for PCs--including disappointing sales of Microsoft’s Windows 2000 operating system, which the industry was banking on as a stimulus for the corporate upgrade cycle.
“Windows 2000 has not resuscitated sales at all--it’s essentially a dud,” Kumar said. The key drivers of Intel’s growth curve--corporate upgrades and purchases by multi-PC households--have trailed off.
Consistent with this concern, other chip and computer stocks fell sharply late Thursday.
Including after-hours trading, Intel’s chief competitor, Advanced Micro Devices of Sunnyvale, Calif., plunged $5.75, or about 19%, to $23.94 late Thursday. Memory-chip maker Micron Technology lost $11.31, or about 17%, to $55.13, and Texas Instruments fell $6.13 to $53.88, a drop of more than 10%.
PC giant Compaq Computer was down $3.31 to $27.88, and rival Gateway lost $8.45 to $51, falling more than 14%.
But some analysts expect Intel and the others to regain their momentum with traditionally strong fourth-quarter sales.
“This is the time of year we start to see revenue growth in the PC sector,” said Dan Scovel of Needham & Co. in New York. Signals from PC makers have been mixed, he added, but current conditions hardly suggest a disaster in the making.
Kumar argued that even if demand rises as expected, Intel will have to offer fire-sale prices on microprocessors to key customers in order to avoid being stuck with left-over inventory. That move would create new revenue problems.
“These products have the shelf life of a sushi plate,” he said. Old chips must make way for newer, faster offerings nearly every quarter.
He added that AMD, whose chip pricing inevitably follows Intel’s lead, could become “road kill” due to pricing pressure. That scenario has flattened AMD’s earnings frequently.
Scovel predicted less-radical cuts in prices, because Intel still commands sweeping power in the marketplace. “Let’s keep this in perspective. They are still going to bring home a net income of $2.3 billion in the quarter,” he said. “This is Intel after all.”
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Silicon Bomb
Intel Corp.’s stock plunged in after-hours trading Thursday, reflecting its surprise announcement that quarterly sales won’t meet expectations.
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Intel shares on Nasdaq, weekly closes and after-hours quote Thursday
Thursday: $48.63 (after-hours quote)
Source: Bloomberg News
