Intel slashes 4Q outlook, sounds alarm for tech sector

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(Agencies)
Updated: 2008-11-13 09:04

SAN FRANCISCO -- Intel Corp. whacked more than $1 billion from its fourth-quarter revenue forecast and ratcheted down its profit expectations because a clampdown on spending is reducing demand for its chips.

An employee walking past the Intel headquarters in Santa Clara, California. Intel Corp. cut its fourth-quarter revenue projections on Wednesday, saying the economic slowdown would hurt its business across the board. [Agencies]

Intel's announcement Wednesday 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.

Intel is the world's largest supplier of microprocessors, the brains of personal computers, with roughly 80 percent of the global market.

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.

The technology sector in general is bracing for a prolonged slump.

Cisco Systems Inc., the world's largest maker of computer networking gear, offered a sign of the trouble last week when it reported that orders fell off abruptly in October. As the first major technology company to report results including October, Cisco's grim forecast suggested that other tech companies will likely have to absorb major damage to their sales as well.

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 shares fell $1.13, or 8.4 percent, 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 December 6.

Intel actually 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.