Skies darkening for Intel's third quarter

The chipmaker cites weak economic demand, falling enterprise PC sales and sluggish growth in emerging markets.

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Intel said Friday that its third quarter revenue will be lower than expected.

The company in a statement projected revenue to be $13.2 billion, give or take $300 million. Intel had projected $13.8 billion to $14.8 billion.

Intel noted that it was seeing "weaker than expected demand in a challenging macroeconomic environment." Meanwhile, Intel noted that customers were cutting inventory. Specifically, Intel said:

Relative to the prior forecast, the company is seeing customers reducing inventory in the supply chain versus the normal growth in third-quarter inventory; softness in the enterprise PC market segment; and slowing emerging market demand. The data center business is meeting expectations.

Intel expects gross margins for the third quarter to be 62 percent, down from the 63 percent projected. Intel added that its capital spending would be lower than expected.

Wall Street was expecting Intel to report third quarter earnings of 60 cents a share on revenue of $14.2 billion.

Intel's sales warning comes after both Dell and HP said PC sales on the consumer front were weak. More worrisome for Intel is that emerging market demand was weak. HP, Dell and Intel noted that sales in emerging markets have tailed off. China in particular has been reporting lower-than-expected economic growth. 

What's unclear is whether Intel's revenue warning is the result of a pause ahead of the Windows 8 launch or the post-PC era. In a research note, Piper Jaffray analyst Auguste Gus Richard said:

We believe the sale of tablets will exceed the sale of notebooks in 2H:CY13 as notebook demand weakens and tablet demand remains robust. We believe popular holiday gifts this year will include the Nexus 7, Kindle Fire, Microsoft Surface and iPad Mini. These ARM-based products are likely to be priced between $199-$299. This is less than half the price of a low-end Ultrabook at $600. Moreover, given the Surface will run Office, it eliminates the last major hurdle, in our view, in adopting a tablet. Our contacts now believe PC demand in 2H:12 could be below 1H:12. This does not bode well for the semiconductor industry or Intel as PCs are roughly one-third of overall chip demand.

Intel's third quarter revenue will put the pressure on the company to become more of a player in the smartphone and tablet markets as it preserves its data center and server dominance.

This item first appeared on ZDNet's Between the Lines blog under the headline "Intel cuts Q3 revenue outlook, cites weak demand."

 

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